Generator manufacturer Generac exceeded expectations by increasing net sales in the second quarter to $546.8 million compared to $541.9 million in the first quarter of 2019, a 0.9-percent increase. Core sales growth, which excludes both the impact of acquisitions and foreign currency, increased about 1 percent.
The key to the increase was residential product sales, which jumped 27.2 percent to $341.4 million compared to $268.4 million in the second period last year. Commercial & Industrial product sales, on the other hand, decreased 32.8 percent to $154.9 million as compared to $230.4 million in the year-ago period.
Net income attributable to Generac during the second quarter was $66.1 million or $1.02 per share, compared to $62 million, or $0.98 per share in last year’s second quarter. This year’s net income includes $11.5 million of pre-tax charges relating to restructuring costs and asset write-downs to address the impact of the COVID-19 pandemic and decline in oil prices.
“Second quarter revenue and earnings dramatically exceeded our expectations primarily driven by robust demand for home standby generators as a result of the heightened awareness of the need for backup power since the onset of the COVID-19 pandemic,” said Aaron Jagdfeld, president and CEO. “With power outages on the rise, concerns of utility shutoffs in California, an active hurricane forecast for the upcoming season, and Americans spending more time at home, demand for home standby generators is at an all-time high. However, as expected, the ongoing pandemic around the world has significantly impacted demand for C&I products. As a result, during the second quarter we initiated a number of meaningful restructuring actions in this part of our business to better align our current cost structure with customer demand.
“While there remains a high degree of uncertainty around the magnitude and timing of an economic recovery, demand for our residential products is clearly benefitting from the emerging ‘Home as a Sanctuary’ trend as the importance of having an uninterrupted supply of power has never been more evident. This trend, along with elevated concerns about future outages, is underpinning the significant increase we are now expecting in our full-year revenue and earnings outlook for 2020. I’m extremely proud of our team’s efforts in ramping up operations to respond to this tremendous increase in demand, while at the same time providing the products, services, and support that are both essential and critical to our customers around the globe.”
Domestic segment sales increased 9.3 percent to $460.8 million as compared to $421.5 million in the prior year quarter. The current year quarter experienced strong growth in shipments of home standby and portable generators as elevated outage activity and nationwide stay-at-home orders heightened consumer awareness of power reliability concerns. Core products sold directly to consumers were also strong during the quarter as homeowners increased outdoor project activity while spending more time at home. In addition, shipments of the recently launched PWRcell energy storage system had a modest impact on growth despite the solar market being negatively impacted by deferrals of installations because of the COVID-19 pandemic. This residential products growth was partially offset by continued weakness in sales of C&I mobile products following the onset of the COVID-19 pandemic and collapse in oil prices, as well as lower shipments of C&I products to national telecom customers as compared to a strong prior-year comparison.
International segment sales, which consists primarily of C&I products, decreased 28.5 percent to $86.1 million as compared to $120.4 million in the prior year quarter. Core sales, which excludes the unfavorable impact of currency, declined approximately 25 percent compared to the prior year. The decline was driven by a continued broad-based sharp drop in global demand caused by the COVID-19 pandemic, which magnified the underlying slower economic growth and geopolitical headwinds that were already being experienced.
While the impact of the COVID-19 pandemic on global C&I products is particularly severe, demand for residential products is benefitting from the emerging “Home as a Sanctuary” trend as more people are working, learning and in general, spending more time at home. With an aging and under-invested electrical grid and power outage severity on the rise, backup power for residential applications has now become more important than ever. Furthermore, the company’s residential products have historically proven to be more resilient and tend to decouple from the broader economic environment as demand is more driven by power outages.
These incrementally positive fundamentals for residential products resulted in the significant revenue outperformance during the second quarter and are driving a much higher outlook for the second half of the year. Accordingly, the company is raising its prior guidance for revenue growth for full-year 2020, and now expects an increase of approximately 5 to 8 percent compared to the prior year, which compares to the 5 to 10 percent decline previously expected. This guidance assumes a level of power outages in line with the longer-term baseline average, the benefit of one significant power shut-off event in California, and a recovery of the solar market in the second half of the year. In addition, should the outage environment in the second half of 2020 be higher because of an active hurricane season and widespread utility shutoffs in California, approximately 2 to 3 percent of additional revenue growth is possible over and beyond this baseline guidance.
