Generac shares slide 7% as it misses top and bottom line expectations
Key Financial Metrics
* Net sales reached $1.06 billion in the fourth quarter, with full-year sales totaling $4.02 billion.
* Gross profit margin improved to 36.5% in the fourth quarter from 32.7% in the same quarter last year.
* Operating expenses slightly increased by $1.8 million or 0.8% year-over-year in the fourth quarter.
* Net income attributable to GNRC was $96.6 million in the fourth quarter, with full-year net income at $214.6 million.
Generac Holdings Inc (GNRC) reported its financial results for the fourth quarter and full-year ended December 31, 2023. The company missed on the top and bottom line which has led to a 7% decline in shares in the premarket.
Despite fewer power outages in Q4, the company experienced growth in home standby generator shipments, reaching a quarterly record. However, commercial and industrial (C&I) product sales remained flat as certain markets, such as telecom and rental, experienced cyclical declines. Generac's ability to navigate the challenging market conditions and drive growth in residential products while managing the softness in C&I sales will be critical for its future performance.
GNRC reported Q4 (Dec) earnings of $2.07 per share, which missed consensus expectations of $2.09. Revenues rose 1.4% year/year to $1.06 bln vs the $1.09 bln consensus.
The company's financial achievements in the fourth quarter, particularly the expansion of its gross profit margin to 36.5% and the generation of record free cash flow, demonstrate its operational efficiency and effective cost management. The improvement in gross profit margin was primarily driven by a favorable product mix, production efficiencies, and cost savings in raw materials and logistics.
Operating expenses saw a slight increase due to higher employee and marketing costs. The provision for income taxes also increased, resulting in a higher effective tax rate of 23.7%. The company significantly reduced its inventory levels by $144 million during the quarter, contributing to its impressive free cash flow figures.
Generac anticipates net sales growth between 3% and 7% in 2024, driven primarily by residential product sales growth in the mid-teens range, led by shipments of home standby generators and residential energy technology products. Partially offsetting this projected strength, C&I product sales are expected to decline at a rate of approximately 10%, primarily due to to weakness with certain direct telecom, rental, and beyond standby customers. As a result, full-year net sales are expected to increase between 3% and 7% compared to the prior year, which includes a slight favorable impact from foreign currency .
Despite these challenges, Generac aims to maintain strong levels of operating and free cash flow generation. Generac's strategic focus on resilient, efficient, and sustainable energy solutions positions it well to capitalize on the increasing reliance on electricity and the challenges faced by grid operators. The company's solid performance in 2023 serves as a foundation for future success and supports its long-term growth outlook.
Investors and interested parties can access the full earnings report and conference call held on February 14, 2024, for more detailed information on Generac's financial results and outlook.