Power generation products company Generac (NYSE: GNRC) fell short of the market’s revenue expectations in Q2 CY2026, but sales rose 10.6% year on year to $1.17 billion. Its non-GAAP profit of $2.91 per share was 44.6% above analysts’ consensus estimates.

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“Second quarter results reflect continued momentum in our C&I segment driven by strong data center market revenue as we continue to ramp production for large megawatt backup generators,” 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

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Generac’s 6.8% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Generac’s recent performance shows its demand has slowed as its annualized revenue growth of 5.1% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Residential and Commercial and Industrial, which are 52.9% and 47.4% of revenue. Over the last two years, Generac’s Residential revenue (sales to consumers) was flat while its Commercial and Industrial revenue (sales to contractors and pros) averaged 20.8% year-on-year growth.

This quarter, Generac’s revenue grew by 10.6% year on year to $1.17 billion but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 19.4% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will fuel better top-line performance.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Generac has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11.5%. 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 6.7 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.

This quarter, Generac generated an operating margin profit margin of 17.9%, up 7.4 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

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.

Sadly for Generac, its EPS declined by 1.9% annually over the last five years while its revenue grew by 6.8%. This tells 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.

Diving into the nuances of Generac’s earnings can give us a better understanding of its performance. As we mentioned earlier, Generac’s operating margin expanded this quarter but declined by 6.7 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 shorter period to see if we are missing a change in the business.

For Generac, its two-year annual EPS growth of 17.1% 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 adjusted EPS of $2.91, up from $1.65 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 to grow 19.9% from $8.15 to $9.77.

Key Takeaways from Generac’s Q2 Results

It was good to see Generac beat analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its revenue slightly missed. Zooming out, we think this quarter featured some important positives. The stock traded up 3% to $201.50 immediately after reporting.

Generac put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. 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).