The hurricane season in 2017 was an active one, causing major damage and major power outages in Texas, Florida, and the Caribbean that raised the demand for backup power supplies. That played right into the strengths of Generac (GNRC 45.98, -2.01, -4.2%), which is a leading manufacturer of power generation equipment for residential, light commercial, and industrial markets.
Generac made the most of its opportunity, recording a 15.8% increase in net sales of $1.672 billion for fiscal 2017 and a 12.2% increase in adjusted net income per share of $3.40.
For its fourth quarter ended December 31, Generac's net sales rose 16.9% year-over-year to a record $488.0 million on the back of an 11.2% increase in Residential product sales and a 27.1% increase in Commercial and Industrial product sales. Gross margin was basically flat at 36.8% and Generac's adjusted net income per share, including a $0.15 benefit due to the acceleration of certain tax deductions, increased to $1.37 from $1.12 in the same period a year ago.
Generac's cash flow from operations of $138.4 million and free cash flow of $121.8 million were both quarterly records as well.
The company attributed its strong showing to a variety of factors that included strong shipments of home standby generators, an increase in residential dealer count, added business from rental customers, and its best ever level of shipments outside the U.S. and Canada as its International segment saw very strong organic sales growth and a substantial increase in margins.
Separately, Generac also announced today a plan to expand its international business with the acquisition of Selmec Equipos Industriales, which is based in Mexico City and manufacturers industrial generators from 10kW to 2,750 kW. Terms of the purchase, which is expected to close in three to six months, were not disclosed.
What Generac did disclose is a forecast for net sales to increase between 3% and 5% in 2018, including a favorable foreign currency impact of 1% to 2%. The company added that net sales should be up between 7% and 9% excluding the benefit of elevated portable generator shipment sin 2017 due to the major outages seen during the hurricane season.
The sales guidance is based on a baseline power outage level in 2018 that is similar to the long-term average, implying that there could be room for upside in the event 2018 witnesses another period of "major" power outage activity.
Shares of GNRC have traded lower following the company's earnings report as investors presumably recognize the tough comparisons Generac will be up against in the latter half of this year. At the current price, GNRC trades at approximately 13.3x estimated FY18 earnings.