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GENERAC HOLDINGS INC. (GNRC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 was an across-the-board beat: net sales $1.061B (+6% YoY), GAAP diluted EPS $1.25, and adjusted EPS $1.65; gross margin expanded to 39.3% and adjusted EBITDA reached $188M (17.7% of sales) .
  • Results exceeded Wall Street consensus: revenue $1.061B vs $1.026B consensus and adjusted EPS $1.65 vs $1.324 consensus; both were meaningful beats driven by strong Residential and Domestic C&I shipments and favorable price-cost dynamics (consensus values from S&P Global)*.
  • Guidance tightened and improved at the margin: full-year net sales growth narrowed to 2–5% (from 0–7%), adjusted EBITDA margin raised to 18–19% (from 17–19%), net income margin raised to 7.5–8.5% (from 6.5–8.5%), and FCF conversion raised to 90–100% (from 70–90%) .
  • Strategic catalysts: initial entry into data centers built a >$150M global backlog for high-output diesel generators, with shipments starting in 2H25 and the majority of backlog realized in 2026; management framed this as a needle-moving, secular growth opportunity tied to AI compute expansion .

What Went Well and What Went Wrong

  • What Went Well

    • Broad-based outperformance: Residential sales +7% to $574M and Domestic C&I sales grew; gross margin expanded 170 bps YoY to 39.3% on favorable pricing and lower input costs .
    • Data center entry traction: “we developed a significant global pipeline of opportunities and began building backlog for our new high-output diesel generator product offering” with backlog >$150M; shipments begin in 2H25 .
    • Energy tech momentum: energy storage shipments to Puerto Rico ramped; ecobee delivered strong growth, improving margins and positive EBITDA YTD; connected homes exceed 4.5M with growing subscription attach rates .

  • What Went Wrong

    • Free cash flow down YoY: FCF fell to $14.5M from $49.7M, primarily on working capital build and higher capex; operating cash flow decreased to $72.2M vs $77.7M YoY .
    • Rental channel softness: continued weakness in C&I shipments to national rental accounts, with expectations for softness through 2H25 .
    • Tariff/macro uncertainty persists: while Q2 benefited from lower tariff impact vs prior assumptions, management still assumes reciprocal tariffs and higher steel/copper prices in 2H25; pricing/action plans needed to offset .

Financial Results

Quarterly Trend (sequential comparison)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$1,234.8 $942.1 $1,061.2
GAAP Diluted EPS ($)$2.15 $0.73 $1.25
Adjusted EPS ($)$2.80 $1.26 $1.65
Gross Margin (%)40.6% 39.5% 39.3%
Adjusted EBITDA ($USD Millions)$265.3 $149.5 $187.6
Adjusted EBITDA Margin (%)21.5% 15.9% 17.7%
Cash from Operations ($USD Millions)$339.5 $58.2 $72.2
Free Cash Flow ($USD Millions)$286.1 $27.2 $14.5

Q2 2025 vs Prior Year and vs Estimates

MetricQ2 2024Q2 2025 ActualQ2 2025 Consensus (S&P Global)*
Revenue ($USD Millions)$998.2 $1,061.2 $1,026.2*
GAAP Diluted EPS ($)$0.97 $1.25 —
Adjusted EPS ($)$1.35 $1.65 $1.3245*
Gross Margin (%)37.6% 39.3% —
Adjusted EBITDA ($USD Millions)$164.7 $187.6 —

Values marked with * retrieved from S&P Global.

Segment and Product Class Breakdown

MetricQ2 2024Q1 2025Q2 2025
Domestic Total Sales incl. intersegment ($USD Millions)$827.1 $782.3 $884.5
International Total Sales incl. intersegment ($USD Millions)$184.5 $185.5 $197.2
Residential External Net Sales ($USD Millions)$538.4 $494.2 $574.2
C&I External Net Sales ($USD Millions)$344.2 $337.4 $362.2
Other External Net Sales ($USD Millions)$115.6 $110.6 $124.8

KPIs

KPIQ2 2024Q1 2025Q2 2025
Gross Margin (%)37.6% 39.5% 39.3%
Adjusted EBITDA Margin (%)16.5% 15.9% 17.7%
Share Repurchases (Shares / $)—716,685 / $97M 392,521 / $50M
Remaining Authorization ($)—$250M $200M
Effective Tax Rate (%)25.0% 24.3% 17.2%
Weighted Avg Diluted Shares60,641,740 59,747,589 59,017,823
Total Debt Outstanding ($)—$1.3B $1.4B; Gross leverage 1.7x
Credit Facilities Update——Term Loan A $700M; Revolver $1.0B; maturity 2030

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales GrowthFY 20250–7% 2–5% Narrowed; raised low end
Adjusted EBITDA MarginFY 202517–19% 18–19% Raised low end
Net Income Margin (pre-NCI)FY 20256.5–8.5% 7.5–8.5% Raised low end
FCF Conversion (Adj. NI)FY 202570–90% 90–100% Raised
GAAP Effective Tax RateFY 202524.5–25% 23–23.5% Lowered
Interest ExpenseFY 2025$74–78M $74–78M Maintained
CapexFY 2025≈3% of sales ≈3% of sales Maintained
Residential Product SalesFY 2025Mid-high single-digit growth (initial) Slightly lower vs prior expectation (pricing lower on tariffs) Lowered
C&I Product SalesFY 2025~Flat vs prior year (initial) Modestly higher vs prior expectation (FX tailwind; Q2 outperformance) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
AI/Data CentersBegan taking orders for large MW generators; initial interest; direct service model leverage >$150M backlog; shipments begin 2H25; structural supply deficit; potential capacity expansion Accelerating opportunity
Supply Chain & CostsPrice-cost favorable; COVID-era tariff diversifications; China <10% of materials Lower-than-expected tariff impact in Q2; assuming 30% China, 20% Vietnam tariffs in 2H; metals tariffs elevated Mixed: manageable but volatile
Tariffs/MacroWidened FY25 ranges; assume 145% China tariffs; consumer elasticity Assumptions lowered (30% China; 20% Vietnam); pricing to offset; FX tailwind Less onerous vs Q1 assumptions
Home StandbyElevated outage afterglow raising baseline; Q1 strong; close rates under pressure Flat YoY sales; installations rising; dealer additions; new platform launch with 28kW Stable baseline; product upgrade
Regional TrendsLatin America strength (Q1); California under-penetrated Southeast strength; Europe C&I strong; Puerto Rico storage ramp Positive in key regions
Regulatory/LegalNon-GAAP addbacks include legal/regulatory expenses Ongoing legal cost addbacks; clean energy policy changes (“One Big Beautiful Bill Act”) impacting tax/FCF Continued headline risk; tax tailwind

Management Commentary

  • “Agile execution in a dynamic operating environment helped drive second quarter results ahead of our expectations... Sales of residential energy technology solutions exceeded expectations... ecobee continued to see significant growth” .
  • “We experienced a strong initial reception to our formal entrance into the data center market... We expect this large and rapidly expanding market to provide meaningful secular growth... accelerating adoption of artificial intelligence” .
  • “We have experienced very strong receptivity to our initial entry into the data center market... global backlog... more than $150 million today” .
  • “Gross margins exceeded expectations for the quarter, partially due to a lower tariff impact relative to our previous guidance” .
  • “We are increasing... free cash flow conversion... to be approximately 90–100% for the full year 2025” due to the One Big Beautiful Bill Act .

Q&A Highlights

  • Data center scale/capacity: Backlog >$150M, initial shipments in Q3 internationally, U.S. late 2025; management sees a structural deficit of ~5,000 machines in 2026 and potential to exceed $500M capacity with current footprint; contemplating bold capacity additions .
  • Clean energy recalibration: ecobee profitable YTD; clean energy (solar/storage) dilution 300–350 bps in 2025 but improving with new products and spend recalibration amidst market contraction from policy changes .
  • Pricing/tariffs: HSB price increase of 7–8% in April; new product line adds 5–7% SKU-level pricing with enhanced features; tariffs assumptions revised (30% China; 20% Vietnam), with pricing and supply chain actions to hold EBITDA margin percentages .
  • Margin sustainability: Confident in maintaining strong margins via price offsets and operating leverage; data center growth seen as EBITDA accretive even if consolidated gross margin modestly dilutive .

Estimates Context

  • Q2 2025 beats: revenue $1.061B vs $1.026B consensus; adjusted EPS $1.65 vs $1.324 consensus (S&P Global)*.
  • Prior quarter also above consensus: Q1 revenue $942.1M vs $918.8M consensus; adjusted EPS $1.26 vs $0.966 consensus (S&P Global)*.
    Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Significant beat and margin expansion in Q2, with guidance raised at the margin (adj. EBITDA, net income margin, FCF conversion) — constructive into 2H25 despite tariff/macro noise .
  • Data center entry is the most material new growth vector; backlog >$150M and potential annual capacity >$500M underpin a multi-year secular story linked to AI/data center build-outs .
  • Residential franchise remains resilient: flat HSB sales on lower outage hours but higher baseline demand; new HSB platform (including 28kW) and pricing support margins .
  • Energy tech is improving quality: ecobee is profitable and scaling high-margin recurring services; storage ramp in Puerto Rico offsets broader solar contraction, with new storage/microinverter products in 2H25 .
  • FCF outlook upgraded to 90–100% conversion (tax policy tailwinds), creating optionality for capacity investments, M&A, and buybacks; $200M authorization remains .
  • Near-term watch items: tariff developments and metals pricing, rental channel softness, outage cadence in 2H25 (guidance assumes baseline outages) .
  • Tactical setup: narrative likely driven by data center wins/backlog growth and Q3 margin leverage; any major outage could provide upside to Residential and portables (management historically cites $50–$100M event impacts) .