Finally, leading global manufacturer of power generation equipment Generac Holdings, Inc. (GNRC, Financial) underperformed in the quarter following an earnings miss due to headwinds in its solar business and a near-term inventory issue that should be worked through in the coming quarters. Subsequently, management announced a downward revision to full year guidance. In our view, GNRC’s unmatched distribution network and product portfolio enjoys strong brand advantages, creating a wide moat for this niche business which commands a 75% market share in the North American residential market. Historically, growth has been limited due to a lack of awareness around the benefits of having a home standby generator, as well as its high price point. However, elevated power outage events, both weather-related and due to aging infrastructure, have tipped the scales of awareness in both the residential and commercial markets. These heightened consumer sensitivities should result in a long-runway of market penetration, margin expansion and free cash flow generation.
From John Rogers (Trades, Portfolio)' Ariel Fund fourth-quarter 2022 commentary.
