Power generation products company Generac (NYSE: GNRC) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 6.3% year on year to $1.06 billion. Its non-GAAP profit of $1.65 per share was 24.6% above analysts’ consensus estimates.

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“Agile execution in a dynamic operating environment helped drive second quarter results ahead of our expectations with outperformance across both Residential and C&I product sales,” said Aaron Jagdfeld, President and Chief Executive Officer.

Company Overview

With its name deriving from a combination of “generating” and “AC”, Generac (NYSE: GNRC) offers generators and other power products for residential, industrial, and commercial use.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Generac grew its sales at an exceptional 14.8% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Generac’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 4.7% over the last two years was well below its five-year trend. We also note many other Renewable Energy businesses have faced declining sales because of cyclical headwinds. While Generac grew slower than we’d like, it did do better than its peers.

Generac also breaks out the revenue for its most important segments, Residential and Commercial and Industrial, which are 54.1% and 34.1% of revenue. Over the last two years, Generac’s Residential revenue (sales to consumers) averaged 9.3% year-on-year growth while its Commercial and Industrial revenue (sales to contractors and pros) was flat.

This quarter, Generac reported year-on-year revenue growth of 6.3%, and its $1.06 billion of revenue exceeded Wall Street’s estimates by 3.4%.

Looking ahead, sell-side analysts expect revenue to grow 3.9% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and suggests its newer products and services will not lead to better top-line performance yet.

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Operating Margin

Generac has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.6%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Generac’s operating margin decreased by 9.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q2, Generac generated an operating margin profit margin of 10.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Generac’s EPS grew at a decent 8.8% compounded annual growth rate over the last five years. However, this performance was lower than its 14.8% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into Generac’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Generac’s operating margin was flat this quarter but declined by 9.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Generac, its two-year annual EPS growth of 23.3% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q2, Generac reported EPS at $1.65, up from $1.35 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Generac’s full-year EPS of $7.96 to grow 1.9%.

Key Takeaways from Generac’s Q2 Results

We were impressed by how significantly Generac blew past analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock traded up 5.7% to $160 immediately following the results.

Indeed, Generac had a rock-solid quarterly earnings result, but is this stock a good investment here? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.