Generac HoldingsGNRC

Generac earned $2.91 per share last quarter, well ahead of the $2.01 analysts expected. While total revenue of $1.17 billion was slightly below targets, the mix of that revenue is what matters. Sales in the commercial and industrial segment jumped 29 percent to $556 million, fueled by the urgent need for backup power at AI data centers.

This shift is critical because it shows the company is successfully moving beyond its reliance on home generators, where sales fell about 2 percent. Management noted that the backlog of orders for data centers is growing quickly, which provides a clear path for growth into 2027. If the company can continue to use its high-margin home business to fund this industrial expansion, it becomes a much more diversified business.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• Data center backlog surging: The total backlog for data center products reached $1.6 billion, and the company recently finalized a deal with a major technology customer for $700 million in equipment for 2027. This rapid growth in the commercial business is providing clear evidence of the shift away from being just a residential generator company.
• Industrial sales lead growth: Sales in the commercial and industrial division grew 29% to $556 million, while residential sales dipped 2% to $617 million. This shift reflects a cooling in the home storage and portable generator market even as demand for massive power systems for large facilities takes off.
• One time tariff boost: Profit margins were boosted by $71 million in tariff refunds, a one-time event that helped push the gross profit margin up to 44.5%. While this provided a significant cash infusion, investors should note it accounted for about 6% of the company's total gross margin this quarter.
• Manufacturing capacity expanding: The company spent $211.8 million on acquisitions this year, including a new facility in Illinois to build large megawatt generators. Expanding this capacity is critical as management works to keep pace with the record $1 billion in new orders received since their last update.
• Increased full year outlook: Management raised their expected operating profit margin, which is the money left over after running the business, to a range between 20.0% and 21.0% for the full year. This is an increase from the prior 18.5% to 19.5% range, mostly due to the impact of the tariff refunds.

Our take: A very strong quarter that shows the company is successfully pivoting toward data center infrastructure. The $1.6 billion backlog in the industrial segment provides incredible visibility for growth through 2027 and makes the business much less dependent on seasonal home generator sales. This quarter significantly strengthens the long-term case for owning the stock.