Power generation products company Generac (NYSE:GNRC) fell short of the markets revenue expectations in Q3 CY2025, with sales falling 5% year on year to $1.11 billion. Its non-GAAP profit of $1.83 per share was 16.7% below analysts’ consensus estimates.
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Generac (GNRC) Q3 CY2025 Highlights:
- Revenue: $1.11 billion vs analyst estimates of $1.19 billion (5% year-on-year decline, 6.6% miss)
- Adjusted EPS: $1.83 vs analyst expectations of $2.20 (16.7% miss)
- Adjusted EBITDA: $193.2 million vs analyst estimates of $233.1 million (17.3% margin, 17.1% miss)
- Operating Margin: 9.3%, down from 14.4% in the same quarter last year
- Market Capitalization: $10.61 billion
StockStory’s Take
Generac’s third-quarter performance fell short of Wall Street’s expectations, as both revenue and non-GAAP profit missed analyst estimates and the market responded with a significant share price decline. Management attributed the underperformance mainly to an unusually low number of power outages, which led to softer demand for home standby and portable generators. CEO Aaron Jagdfeld described the weather as “really nice everywhere,” leading to outage hours 75% to 80% below normal for the quarter. Despite these headwinds, the company highlighted continued strength in its commercial and industrial (C&I) products and resilient demand for residential energy technology solutions.
Looking ahead, Generac’s guidance is shaped by several crosscurrents. Management believes C&I product growth will accelerate due to a surge in data center demand, with a backlog for large megawatt generators doubling over the last 90 days. However, residential energy technology is expected to contract in 2026 following the end of the Puerto Rico grant program and reduced federal incentives. Jagdfeld cautioned that, “It’s not going to feel good in terms of the results next year for that segment,” but remains optimistic about the long-term opportunity driven by rising power prices and declining component costs.
Key Insights from Management’s Remarks
Management cited an exceptionally weak outage environment as the primary reason for underperformance, while pointing to data center traction and new product launches as bright spots.
- Home standby demand resilient: Despite lower overall demand, home consultations and dealer network growth indicated continued interest in backup power solutions, with close rates improving due to a new data-driven lead distribution process.
- C&I momentum driven by data centers: Commercial and industrial product sales rose, led by domestic telecom, industrial distributor channels, and initial shipments of large generators to data center customers. Backlog for these products more than doubled, signaling strong prospective growth.
- Residential energy tech outperformed: Energy technology solutions, especially energy storage systems in Puerto Rico, exceeded internal expectations. Ecobee, the smart thermostat unit, delivered another profitable quarter with growing high-margin recurring revenue.
- Next-generation product launches: The company began shipments of its next-generation home standby generator and launched new energy storage and solar microinverter products, aiming to differentiate through lower costs, better fuel efficiency, and remote diagnostics.
- International expansion: International sales grew, benefiting from C&I shipments in Europe and Australia, and favorable currency effects. International EBITDA margins also improved due to a stronger sales mix.
Drivers of Future Performance
Generac’s outlook hinges on C&I growth driven by data center demand, tempered by residential headwinds from reduced incentives and a weaker outage environment.
- Data center power demand surge: Management expects the rapid expansion of data center infrastructure to drive significant growth in large megawatt generator sales. The company is investing in capacity and working to become an approved vendor for hyperscale data centers, which could double C&I sales within three to five years.
- Residential segment contraction: Loss of the Puerto Rico energy grant and a reduction in federal tax credits are forecasted to contract the residential energy technology market in 2026. Generac plans to recalibrate investment levels and monitor performance closely, emphasizing that further adjustments may be needed if share gains do not materialize.
- Margin recovery efforts: Management anticipates EBITDA margin improvement in the coming year, driven by sales mix normalization, operating leverage from higher volumes, and the scaling back of transitory costs related to new product launches and plant ramp-ups.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be watching (1) the pace of data center generator backlog conversion and progress on hyperscale approvals, (2) the ability of new residential products and energy storage solutions to gain market share post-incentive reductions, and (3) margin stabilization as Generac recalibrates investment and operational costs. Developments in international markets and updates on capacity expansion projects will also be important markers of execution.
Generac currently trades at $182.55, down from $190.18 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).
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