Disaster Preparedness: The Boom-Bust Effects of Hurricanes

This interesting article analyzes the cyclic trends of revenue that result before and after hurricanes that affect the masses. It specifically focuses on Generac Holdings’ (GNRC), as the effects from Hurricane Sandy on the major company begin to slowly fade. In 2012, after Hurricane Sandy devastated the Northeast, it was widely predicted that generators would quickly become a ubiquitous household appliance.  But it’s rather fascinating to look back at past Hurricanes and consider the effects on the residential generator business revenue trends.

In retrospect, back in 1992 when Hurricane Andrew devastated most of South Florida, there was no real residential generator business boom that followed. Even the powerhouse company, Generac, wasn’t able to benefit from the hurricane and the general lack of preparedness. Fast forward to 2004-2005 when over 17 hurricanes occurred in Florida and Louisiana. As a result, the residential business witnessed a huge explosion. The resulting revenue increase lasted for a period of about 4 years.

Suddenly, other major companies began diving into the residential business to take advantage of the growing market. In 2006, Generac was sold to a private equity firm named CCMP for nearly twice of the company’s book value. Briggs and Stratton and Kohler jumped into the residential business, as well.

In 2008, Houston was hit by Hurricane Ike, which made the market even more appealing as a business boom quickly ensued, but the market still continuously slid an average of 25% each year. In 2010, Generac went public with their business and only showed a value of $800 million, essentially half of what it was initially sold for.

Looking at these trends leads to the idea that the boom-bust cycle in the generator market is simply getting shorter. The article referenced above depicts this in numbers. Generac’s first quarter residential loss of $91 million is a directly correlated to the fall from demand that was created by Hurricane Sandy.

Ultimately, the Hurricane’s effects on business used to last approximately 4 years. Now, that number has shrunk down to 2 years. This poses a major challenge for manufacturers and dealers alike. When looking forward, you’re faced with the dilemma of growing or not. How do you sustain growth with these present trends? The challenge primarily lies in the observed trend of when a hurricane hits, people immediately react, and sales inevitably observe an increase, but the duration of those after effects seem to be slowly decreasing as the years continue.