Caterpillar Dealers See Demand for Generators Rising

Hurricane Sandy, the third storm in the past 14 months to disrupt power supply to millions of U.S. homes and businesses, has boosted demand for generators made by Caterpillar Inc. (CAT) and Generac Holdings Inc. (GNRC) as frustrated customers experience more frequent blackouts.

More than a week after Sandy cut power to 8.5 million customers in 11 states, almost 1 million are still without power as the Northeast faces another storm with winds and rain today. Caterpillar dealers and Honda Motor Co. have had to shift inventory to meet demand as blackouts linger for owners of some homes and businesses.

Generac, the largest maker of standby residential generators, said last week that 2012 sales and adjusted earnings would increase more than 40 percent from a year ago because of the recent outages, up from a previous forecast of more than 30 percent. The Waukesha, Wisconsin-based company has gained 32 percent since the storm struck, closing yesterday at $37.51 in New York.

“There is more awareness of the need for standby power generation, both on the residential and industrial side,” Andy Kaplowitz, a New York-based machinery analyst for Barclays Plc, said in a phone interview yesterday. Kaplowitz said he’s looking to buy a generator for his own home in New Jersey, where as many as 65 percent of customers lost power from Sandy.

H.O. Penn Machinery Co., a Caterpillar dealer serving New York and Connecticut, has seen “significant” rental demand before and after the storm and expects it to remain strong in the weeks ahead, Chief Executive Officer Rob Cleveland said in an e-mail.

‘Unstable’ Grid

A string of weather events, including last year’s Hurricane Irene and an October 2011 snowstorm, has brought to light “how unstable” the power grid is, Zach Larkin, a Little Rock, Arkansas-based analyst for investment bank Stephens Inc., said in a Nov. 5 interview.

The number of power interruptions in North America more than doubled last year from 2009, Generac said in a Nov. 6 presentation, citing data from North American Electric Reliability Corp.

Only 2.5 percent of unattached single family homes in the U.S. currently have a standby generator and each percent of additional penetration represents $2 billion, Generac estimates. The North American market for residential standby generators increased 17 percent annually on average in the decade through 2011, the company said, and there are more than 14 million buildings in the U.S. that may need a generator.

‘Backup Plan’

Generators range in price from a few hundred dollars for portable units fueled by gasoline to several million dollars for custom-made units that run on natural gas and can power large buildings.

While the sluggish economy may weigh on plans by businesses and consumers to invest in these products, use of power generation equipment made by companies such as Caterpillar and Cummins Inc. (CMI) will increase and supplies will tighten, said Kaplowitz.

Honda’s Atlanta-based power equipment unit, which sells portable generators the company makes in Japan, is running low on inventory following last week’s storm, Sara Pines, a spokeswoman for the unit, said in a Nov. 5 e-mail.

Demand is at “incredible levels, it’s like nothing we have seen before,” said Melanie Tydrich, a spokeswoman for closely held Kohler Co., the second-largest maker of standby residential generators.

Long-Term Effect

“The events of the last few days continue to demonstrate for home owners and business owners the importance of having a backup plan for their power needs,” Aaron Jagdfeld, chief executive officer of Generac, said in an Oct. 31 statement.

Still, events such as superstorm Sandy usually don’t have a long-term effect on sales or profit, Stephen Volkmann, a New York-based analyst with Jefferies Group Inc., said in an interview.

Cummins, based in Columbus, Indiana, supplies generators for homes, boats, businesses and utilities. After a storm, inventory will be shifted to the region most in need, he said.

“The overall impact is less than you might think,” Volkmann said. “For example, for Hurricane Katrina, Cummins traded up initially then lower after a few weeks.”

Cummins has seen more demand for generator rentals than sales, said Jon Mills, a company spokesman. The company has gained 8.6 percent since Oct. 29, when Sandy made landfall in New Jersey, and the shares have increased 16 percent this year.

While most inquiries coming into Carolina Cat, a Charlotte, North Carolina-based dealership, often fade after a storm hits, large businesses such as grocery stores with long-term plans are ensuring new buildings are wired for generator hookups, Chief Executive Officer Ed Weisiger Jr. said.

Voting Booths

Briggs & Stratton Corp. (BGG), a Milwaukee-based maker of generators, began shipping inventory east from as far away as California a week before Sandy struck. Now the company is looking for temporary help at two plants in Wisconsin and Alabama, which are running at full capacity to fill backorders.

Demand may increase 20 percent in the next year because of increased storm damage, Eric Loferski, director of marketing for portable power products for Briggs & Stratton, said in a phone interview yesterday.

The company sold 800 portable generators to the National Guard after a Homeland Security official walked into a retailer in Queens, New York, on Nov. 2 seeking to power voting booths. Briggs & Stratton worked through the weekend to round up units from small retailers in surrounding states.

Pumping Water

The fear that more power outages from storms like Sandy may be the norm going forward convinced Ryan Devlin, 40, to buy a generator for his home in Long Island City, New York. The basement and the first floor of the house, which has been without power for a week, were destroyed by floods from the East River. He and his wife Jessica borrowed a generator to pump water out of the basement because local stores were out of stock.

“They’re really hard to get a hold of right now,” Devlin said of the generators. “The minute they come in, we’re going to get one. From now on, we can’t afford not to have one.”

To contact the reporters on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net; Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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