Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Generac Holdings Inc (GNRC, Financial) exceeded expectations for adjusted EBITDA and adjusted EPS due to lower input costs and operating expenses.
- Residential product sales increased by 8% year-over-year, driven by strong growth in home standby generator shipments.
- Gross and adjusted EBITDA margins expanded significantly from the previous year, benefiting from a favorable sales mix and lower input costs.
- The company raised its 2024 full-year outlook due to increased demand for home standby and portable generators following recent power outage activity.
- Generac Holdings Inc (GNRC) continues to invest in expanding its dealer and aligned contractor networks, which is seen as a competitive advantage.
Negative Points
- Global C&I product sales decreased by 10% year-over-year, impacted by softness in the telecom and rental markets.
- Residential energy technology products and solutions are negatively impacted by structural changes to California's net metering program and higher borrowing costs.
- Activations or installations of home standby generators were down modestly during the first half of 2024.
- International sales declined year-over-year, primarily due to lower shipments in Europe and intercompany shipments from Mexican operations.
- Operating expenses increased by 12% compared to the previous year, driven by investments in resources for future growth.
Q & A Highlights
Q: Can you characterize how much of the home standby growth is due to lapping over destocking versus incremental underlying demand? And can you characterize activations versus shipments in Q2 and through July after the storm?
A: The increase in guidance from mid-teens to high-teens is largely storm-related and incremental. The original guidance had already considered the destocking. Activations in the first half were modestly down due to lower power outage activity, but they are expected to grow through the balance of the year, with July already showing an uptick.
Q: What led to the guidance increase in July? Was it strictly in areas impacted by the hurricane, or were there reverberations throughout Texas?
A: The impact of Hurricane Beryl was significant, especially in Houston. The increase in in-home consultations (IHCs) has been dramatic in July. Texas is still under-penetrated at less than 5%, so there's room for growth. There is also an echo effect in other markets due to media coverage of the event.
Q: Can you discuss the margin trajectory for clean energy and the timing of new product launches?
A: Ecobee's margins have improved due to cost reductions and supply chain efficiencies. The timing for new product introductions remains unchanged, with the next-generation storage device expected later this year and microinverter products in the first half of next year. The Department of Energy grant for Puerto Rico will also help offset market weakness.
Q: Do you expect input cost tailwinds to continue into the second half? And can the storm activity drive incremental uptake from warm leads?
A: We expect a couple of percent improvement in gross margins from the first half to the second half, mainly due to a higher mix of home standby products. The increased IHCs and improved nurturing techniques should help convert warm leads into sales, even if close rates temporarily weaken.
Q: Can you put a finer point on the revenue guidance update? Why not be more conservative given the significant outage hours from Hurricane Beryl?
A: The guidance increase is towards the lower end of the $50 million to $100 million impact range from Hurricane Beryl. It's early, and while portable generator uptake wasn't as significant due to the storm's unexpected path, the increase in IHCs supports the guidance.
Q: Is there an opportunity for normalizing material and logistics costs to drive a tailwind relative to guidance?
A: We expect sequential improvement in gross margins due to continued mix improvements and some price-cost benefits. Year-over-year price-cost improvements should continue to read through in the second half.
Q: How much does Texas contribute annually to demand, and what is the outlook for telecom and rental customers?
A: Texas is a significant market, with penetration growing from sub-3% to sub-5% since the 2021 freeze. We believe the telecom market is at its bottom, with potential green shoots in the back half of the year. The industrial distributor channel has performed well and is expected to remain strong.
Q: Have you seen any reverberations in IHCs in adjacent markets due to the storm activity in Texas?
A: Historically, widespread outages lead to increased IHCs in adjacent markets. While media coverage of Hurricane Beryl was less than expected, we are seeing positive reverberations, especially in Gulf Coast states.
Q: Any updates on the standby segment and traction in that area?
A: The standby segment is still bullish but has been quieter due to the higher rate environment. Projects are idling, waiting for a more constructive rate environment. We are also seeing growth in microgrid projects, which include natural gas generators, storage, and EV charging.
Q: Can you provide more color on the strength in the Indian market?
A: India is a growing market for us, especially with our focus on natural gas products. The political environment has been more receptive to business, and we are bullish on India's long-term growth prospects.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
