Generac Holdings Inc

Generac Holdings Inc (GNRC) was a top contributor in the SMID Cap strategy during the second quarter, reporting first quarter 2026 results that significantly exceeded expectations. Net sales increased 12% year-over-year to $1.06 billion, and adjusted diluted EPS of $1.80 surpassed the consensus estimate of $1.35 by more than 30%. The primary driver of upside was the Commercial & Industrial segment, where net sales grew 28% to $510.1 million. Management noted it is in the final stages of vendor qualification with several hyperscale customers, pointing to further data center-driven upside in future quarters. We believe the combination of C&I momentum, improving residential fundamentals, and expanding margin profile positions the company for a meaningful earnings inflection over the next several years.

Generac Holdings Inc (GNRC) was a top contributor in the SMID Cap strategy during the second quarter, reporting first quarter 2026 results that significantly exceeded expectations. Net sales increased 12% year-over-year to $1.06 billion, and adjusted diluted EPS of $1.80 surpassed the consensus estimate of $1.35 by more than 30%, representing a 43% increase over the prior-year period. The primary driver of upside was the Commercial & Industrial segment, where net sales grew 28% to $510.1 million. Management raised its full-year 2026 net sales growth outlook to the mid-to-high teens percent range, and we believe the combination of C&I momentum, improving residential fundamentals, and expanding margin profile positions the company for a meaningful earnings inflection over the next several years.

We have long owned Generac Holdings, Inc. (GNRC) for its leading residential and commercial backup-power franchise. We were attracted to durable competitive advantages, high-quality management teams and compelling valuations. While we welcome the incremental demand created by AI-driven data centers, that was never the basis of our investment thesis. Our commitment to valuation, business quality and downside protection is foundational, and we believe Generac's strong position in the market supports our positive outlook.

We have long owned Generac Holdings, Inc. (GNRC) for its leading residential and commercial backup-power franchise. We were attracted to durable competitive advantages, high-quality management teams and compelling valuations. While we welcome the incremental demand created by AI-driven data centers, that was never the basis of our investment thesis. Our commitment to valuation, business quality and downside protection is foundational.

Generac Holdings, Inc. (GNRC), a maker of backup power equipment, surged +49.9% as data center related demand strengthened. This performance highlights the company's ability to capitalize on specific operational strengths rather than broader market trends. The demand for backup power solutions is expected to continue growing, positioning Generac favorably in the market.

We trimmed some positions in the technology names... Generac (mostly in tax-exempt accounts) as these positions had become oversized because of significant stock price appreciation. This indicates that while we recognize the growth potential of Generac, we believe its current valuation may not justify the size of our position, prompting us to reduce our holdings.

Generac should benefit from the long-term increase in demand for resilient power infrastructure, driven by AI data centers, chip fabs, an increasingly constrained electric grid, and growing electrification. The company is well-positioned to capitalize on these trends, which are expected to enhance its growth potential significantly.

Generac has been a strong contributor to the Large Cap Value Portfolio, particularly in the Industrials sector. The company is well-positioned to benefit from the current economic environment, which favors value stocks. As the portfolio manager noted, 'The sectors that added the most to the LCV portfolio’s return in the quarter were Industrials (FedEx and Generac).' This indicates a positive outlook for Generac's performance moving forward.

The letter mentions that Generac (GNRC) was trimmed in the portfolio as it moved into the upper end of the fair value range, indicating a cautious approach to its valuation. The manager notes that they had previously added to their position when it came under selling pressure, but after a quick recovery, they decided to harvest gains.

Generac Holdings, Inc. (GNRC) was a bottom performer in the SMID Cap strategy in the fourth quarter. Despite experiencing the fewest power outages in the U.S. since 2015, which led to lower demand for their most profitable product group, Home Standby generators, the company is well positioned as the dominant player in this segment. The Commercial and Industrial segment is performing well with a 9% sales increase year-over-year, and their home automation business is growing in revenue and profitability. Additionally, strong demand for their large gensets for data center applications presents further growth opportunities.