Generac (GNRC 50.24, -1.85, -3.6%) manufactures a wide range of power generation equipment. Until recently, its stock had been stuck in a rut as a relative lack of power outages led to some relatively lackluster earnings reports. A lot has changed in the last few months, however, as one of the most destructive periods of hurricane activity in some time has helped turn the fortunes for the company and its stock.
The proof is in the numbers.
Shares of GNRC have surged 44% since August 23, or just prior to the successive arrivals of Hurricanes Harvey, Irma, and Maria, which triggered widespread power outages in highly-populated and highly-trafficked areas.
Generac was in a perfect position to help aid with those power outages and to act as a source of insurance for affected residents and businesses that wanted to avoid a similar situation from happening again. Sure enough, Generac capitalized on the opportunity.
The company's net sales increased 22.5% to a record $457.3 million in the third quarter, its adjusted net income per diluted share jumped 13% to $0.93, its cash flow from operations soared 39% to $67.0 million, and its free cash flow rose 46% from the year-ago period to $60.4 million.
Generac's residential business powered the results, with residential product sales up 30.6% to $251.9 million. Commercial and industrial product sales improved 16.6% to $174.5 million.
The company acknowledged that the active hurricane season drove significant shipments of portable generators, which carry lower gross margins, and that it is now working to replenish its portable inventories back to more normalized levels.
The latter point notwithstanding, Generac is increasing its guidance for full-year 2017 due to an improved outlook for residential products. Net sales are now expected to increase between 14% and 15% ($1.65-$1.66 billion), versus prior guidance of 6% to 8%, with organic sales growth up between 9% and 10%, versus prior guidance of 2% to 3%.
Generac is also forecasting adjusted EBITDA margins, before deducting for non-controlling interests, to be approximately 19% for the full year, versus prior guidance of approximately 18.5%.
This is good news for GNRC shareholders, but with the stock having run like it did ahead of the report, it is fair to say much of it was priced in already; hence, the stock is down in the wake of the third quarter report that had some good earnings power behind it and exceeded analysts' average expectations.