US 'Not Making Enough Houses,' Says Generac CEO

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00:00Talk to us about earnings because investors seem pretty disappointed in the results. What do we

00:05need to know now that it's a couple of weeks since? Yeah. So, you know, we have two parts of

00:12our business, right? The part that probably most people know us for the residential machines that

00:17we build here in Wisconsin and around the U.S., home backup systems. You know, it was a soft

00:22season this year, really driven by two things. I would say the first thing is just we actually had

00:27really nice weather most of the summer and the fall. No landed hurricanes, which is great for

00:32the people who live along the coast. But if you're in a business like ours, obviously that does impact

00:36demand. So demand was softer just on the back of, you know, basically nicer weather. And secondarily,

00:41we're starting to see some demand destruction, I think, with the consumer. You know, just we've had

00:46to put more pricing into the marketplace over the last five years coming off of COVID response to the,

00:51you know, the tariff environment today. And that is starting to wear on the consumer and starting to

00:56impact our business a bit. The demand destruction that you're talking about, I want to home in on

01:00that a little bit. What specifically is being hurt right now? Is it the purchasing power of the

01:08consumer? Talk a little bit more about that, what you're seeing in the marketplace right now.

01:12No, thanks, Tim. And specifically for us, you know, this is a home improvement project,

01:16right, for the most part. So because it's tied to the home and investment in the home,

01:20I think, you know, there's, there's, I think housing just in general has just been slower,

01:25right? So the number of sales and, you know, purchases of homes, new construction of homes,

01:31all of those statistics are, are lower than I think where we'd like to see them at this point.

01:36We're not, we're not making enough housing in this country, unfortunately, and, and people

01:40investing in their homes, you know, picking those types of projects. I think there's just a reticent

01:44right now, given some uncertainty, you know, just where's the economy headed more broadly as we,

01:48as we turn the page on 2025. Are you a little bit more subdued then? Like as you look into 2026,

01:54I mean, it's just around the corner here. Certainly in our residential business, I would

01:58say that's the case. I think interestingly enough, in our commercial and industrial business, where we

02:02make larger generators for backup, manufacturing plants, hospitals, hotels, and data centers, which

02:08is a new market for us, we're actually seeing, you know, some very nice indicators of strength,

02:13obviously on all of the capex spending and data centers in that market with,

02:18being driven by AI, of course, as you guys have reported and everybody's reporting on,

02:22but we're getting swept up in that a bit. And that is, I think, going to offset largely,

02:26be a nice counterweight for what we do and what we're probably going to see here in the residential

02:30market. What is the connection between severe weather patterns, outages, and then, you know,

02:35a few weeks or a few months later, your own sales?

02:39Yeah, typically for us, what you would see, so if you go back, you wind the clock back to last year,

02:43we had a very strong hurricane season, three landed storms starting in July, and then we had

02:48two storms in October and one in November. Typically, you would see a pattern of increased

02:54demand for a couple of quarters after that, which we did see first half of last year and kind of

02:59coming actually into the season this year in anticipation for another season we thought was

03:04going to be active based on all the long-range forecasts. But it just didn't play out that way.

03:08So the weather patterns were a lot more mild. And as a result, you know, it just, we didn't see

03:13products sell through at the same rate. Hey, I want to take a bigger kind of step back and look at

03:18the big picture environment of what you sell into the U.S. energy grid, because we talk a lot each

03:24and every day about the new data centers that are coming in line, the increased demand that we're

03:29seeing not just from consumers, but from companies when it comes to energy, increasing energy prices.

03:34And we understand the grid is definitely cobbled together. And what a grid looks like in one

03:39community is not what it looks like in another community. But how would you characterize the

03:43resilience of the U.S. energy grid right now? Well, you know, they do grade the grid, and they

03:50grade a lot of the major infrastructure every year. And I think the grid got a D this year. So,

03:55you know, I think when you look at the, that's a report from the civil engineers.

03:58Who we should note are the ones who want to be, you know, building and building this stuff. So

04:02we have to take those grades with a grain of salt, I think.

04:05Well, I think you're right on that. But still, nonetheless, I mean,

04:08outages have been on the rise, right? Maybe this year, this past season was a pretty mild one,

04:14but outages are on the rise in terms of the frequency of the outages and also the duration.

04:18And, you know, it used to be weather delivered a lot of those knockout punches to the grid in terms

04:22of 80% of all outages caused by something driven by weather directly, you know, hurricanes,

04:28ice storms, things like that. What we've been seeing is an ongoing trend here.

04:32A trend that's been forming around outages that are happening because you've got constraints

04:36of supply where demand is overwhelming supply. If you go back, probably the best case we can give

04:41you an example is February of 2021 in Texas with the freeze down there, right? So you had just very

04:48cold, you know, temperatures down in Texas, not historically cold, but very cold. And all of the

04:53heat is, you know, either electrical in nature, heat pump or baseboard heating. And it overwhelmed

04:59the amount of supply that was available. And what you saw there is ERCOT, the grid operator was,

05:04you know, they basically had to make a tough choice to turn everybody off. You know, they took the

05:09decision to disconnect, you know, millions of homes and businesses to save, you know, the major elements

05:15of the grid from long-term destruction. And so we're seeing these types of patterns, you know,

05:20you mentioned, we're seeing demand growing at a rate that it hasn't, that we haven't seen in two

05:25decades. So, you know, they're, and they're only talking about a couple of percentage points

05:29increase, and it sounds like something small to you and I, but when you talk about the grid and

05:33kind of the greater context, a couple of percentage points of increases in demand is a lot. It's

05:38projected, especially with, when you look at the data center build out, a hundred gigawatts of power

05:43is going to be needed over the next five years. And so, you know, that's like the equivalent of

05:47adding 20 New York cities. Like, so if you think about just the amount of power that that is the raw

05:52power on the grid, that's going to be needed. And it's happening at a time when we're

05:55actually retiring a lot of older assets, coal-fired plants and some other things like that.

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