Generac Q4 Earnings Call Highlights

Core Insights - Generac reported a fourth-quarter net sales decrease of 12% year over year to $1.1 billion, primarily driven by a 23% drop in residential product sales, while commercial and industrial (C&I) product sales increased by 10% [2][6][16] Financial Performance - Fourth-quarter gross margin was 36.3%, down from 40.6% a year earlier, attributed to an unfavorable sales mix, a $15.6 million net inventory provision, higher input costs, and lower manufacturing absorption [1][6] - The company posted a GAAP net loss of $24 million for the fourth quarter, compared to a net income of $117 million in the same quarter of the previous year [6][14] - Adjusted EBITDA for the fourth quarter was $185 million, or 17% of sales, down from $265 million, or 21.5%, in the prior-year quarter [6][14] Market Dynamics - The performance in the fourth quarter was led by a 10% year-over-year increase in C&I product sales, driven by higher revenue from data center customers, while residential generator shipments declined due to a weak power outage environment [3][4] - Generac's backlog in the data center market is approximately $400 million, with expectations for order intake to accelerate in the coming quarters [5][8] Product Segments - Residential generator shipments declined by 25% year over year, influenced by the lowest total outage hours in a decade and a transition to a new home standby platform [10] - The ecobee product line saw net sales growth at a mid-teens rate, contributing positively to EBITDA and expanding its connected home count to about five million residences [12] Future Outlook - For 2026, Generac anticipates mid-teens sales growth, with residential net sales expected to increase around 10% and C&I product sales projected to grow about 30% [16] - Gross margin is expected to remain flat year over year in the 38%-39% range, with adjusted EBITDA margin anticipated to rise to 18%-19% [17] - Free cash flow for 2026 is projected at approximately $350 million, with capital expenditures expected to be about 3.5% of forecast net sales [18]