Generac Holdings CEO Discusses Q2 Results - Earnings Transcript

Start Time: 9:00

End Time: 9:57

Generac Holdings Inc. (GNRC)

Q2 2012 Earnings Call

August 2, 2012 9:00 AM ET

Executives

Aaron Jagdfeld – President and Chief Executive Officer

York Ragen – Chief Financial Officer

Analysts

Mike Halloran – Robert W. Baird & Co.

Jerry Revich – Goldman Sachs

Christopher Glynn – Oppenheimer & Co.

Jeff Hammond – Keybanc Capital Markets

Chris Godby – Stephens Inc.

Brian Drab – William Blair

Stanley Elliott – Stifel Nicolaus

Presentation

Operator

Good day ladies and gentlemen, and welcome to Second Quarter 2012 Generac Holdings Inc. Earnings Conference Call. My name is Fab and I’ll be your operator for today. (Operator instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. York Ragen, Chief Financial Officer. Please proceed.

York Ragen

Thank you. Good morning and welcome to our second quarter 2012 earnings call. I like to thank everyone for joining us this morning. With me today Aaron Jagdfeld, our President and CEO.

We will begin our call today by commenting on forward looking statements. Certain statements made during this presentation as well as other information provided from time-to-time but Generac Holdings employees may contain forward-looking statements and involve risk and uncertainties that could cause actual results to differ materially from those in these forward looking statements.

Please see our earnings release or SEC filings for a list of words or expressions that identify such statements in the associated risk factors.

In addition, we’ll make reference to certain non-GAAP measures during today’s call. Additional information regarding these measures including reconciliation to comparable US GAAP measures is available in our earnings release and SEC filings.

I’ll now turn the call over to Aaron.

Aaron Jagdfeld

Thanks, York. Good morning everyone and thank you for joining us today. We’re pleased to report our second quarter 2012 results this morning which we believe reflect the powerful macro growth drivers for our business and a continued progress we’re making and executing our powering ahead strategic plan.

Our second quarter net sales increased 48% to $239.1 million and on a pro forma basis our net sales for the last 12 months as of the end of the second quarter were approximately $1.1 billion. Growth in shipments of home standby generators were again strong during the quarter as the market for this product category continuous to further develop with more home owners becoming aware of the importance of having a backup power system for their home.

Major outage events like the ones recently experienced in the Midwest and Mid-Atlantic regions in late June and early July are further examples of the powerful macro drivers for our business, as the prolonged under investment in the aging electrical grid is leading to more frequent and longer power disruptions for homeowners and businesses.

With only 2.5% of US households owning a home standby generator, we believe the latest series of outages both during the second half of 2011 and again at the end of the second quarter of 2012 have helped to create significant awareness for this growing product category.

As we’ve experienced in the past, we expect this to make increased awareness will accelerate the adoption of these products, leading to a new and higher baseline level of demand over the longer term. As part of our powering ahead strategic plan we have a number of sales and marketing initiatives designed to extend the positive impact that outages have on home standby generator demand.

In addition, increased home standby sales we also experience solid double digit growth in portable generator shipments as we further expanded placements for these products during the quarter. Our ongoing success in portable generators after reentering in this category four years ago has further solidified our leading position and providing a full range of backup power products for the residential market.

Additionally, well we’re still in the early stages of both programs we continue to be encouraged by the quarterly sales trends related to our recent residential product introductions of power washers and Honeywell licensed generators.

Magnum products has also contributed to our year-over-year sales growth as demand for mobile equipment has benefited from a secular shift towards renting versus buying and the equipment rental companies replace our aging fleets. As we have mentioned previously, with little to know overlap with Generac’s products, distribution channels and end markets. The Magnum acquisition brings additional diversification to our business, while also providing cross selling opportunities for our sales teams.

We’re also making good progress with integrating Magnum’s operations and are on track to achieve our cost synergy targets laid out the time of the acquisition. After three quarters of ownership we continue to see Magnum as a complementary and strategic fit with Generac.

Another important driver for our business going forward is the increase market interest in cleaner burning, more cost effective natural gas fuel backup power solutions. While still a much smaller portion of the overall C&I market, demand for these products is increasing at a faster rate than traditional diesel fuel generators given their low capital and operating cost.

As a leader in the Northern American market for natural fuel generators for over 30 years, we believe we are well positioned to capitalize on the secular shift towards these products. During the second quarter we continue to see increase year-over-year shipments of natural gas generators providing attractive organic growth for our C&I business.

In addition, to capitalizing on the powerful macro growth drivers for our business we’re making important progress in executing our powering ahead strategic plan. This strategy implemented less than two years ago it’s served as a template for our investments in the company that we expect we’ll drive our longer term base line growth.

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