SUMMARY: Gen-set sales climbed 5% over Q1 2018 levels in anticipation of the camping season and end of fiscal year for many government and industrial consumers. While fewer dealers commented on specific-storm related residential demand this quarter, the 5% growth this quarter does seem to indicate that last year’s hurricanes may have raised the gen-set market up to a new normal, especially when compared to the 1.8% growth reported in Q2 of 2017.
We typically identify one or two particular power ranges that fueled growth over the previous quarter, but in Q2 2018, we observed 5-8% growth in every range from 10kW to 2MW. Additionally, gaseous-fueled gen-sets experienced double-digit growth in the power ranges above 300kW. On a Year-on-Year basis, overall unit sales for Q2 2018 were up 16.5% compared to sales levels in Q2 2017, marking four consecutive quarters of double-digit YoY growth, which we haven’t seen since the 2011-2012 timeframe. Diesel gen-sets were up slightly from 3-5%, but expectations for next quarter are a rebalancing of growth toward the smaller ranges relative to expectations from the same quarter in previous years.
The data comes from the proprietary PowerTrackerTM series of syndicated surveys conducted each quarter by Power Systems Research. A total of 1,400 interviews are completed each quarter with gen-set dealers and distributors, businesses and households across North America.
Following the typical Q1 contraction, the <10kW and 10-20kW ranges rebounded somewhat better than historical precedent, largely due to the ongoing camping season. The <10kW range experienced positive Q2 growth for the first time in three years, and the 10-20kW range supassed 5% in Q2 for the first time since 2011. Growth in the 21kW-2000MW ranges was also robust, ranging from 5-8%, which for some ranges was the greatest Q2 QoQ growth since 2009. Several dealers commented on the strength of the economy as a driving force in sales, particularly in non-residential sales, and it certainly shows.
Much of this growth seems to be driven by natural gas, which experienced high single-digit growth in the 21-300kW ranges, and double-digit growth in the 301kW-5MW ranges, compared to low- to mid-single-digit growth across the board for diesel.
After two consecutive quarters of QoQ decline, dealer inventories grew 2.4% over Q1 2018 levels, in a sign that OEMs have started to catch up to the sudden burst in demand after last year’s hurricane season. This leaves dealer inventories 5% higher than Q2 2017 levels.
As part of our PowerTrackerTM series, we also monitor gen-set sales trends by application type. Last quarter, we shared the prediction from one dealer that the effects of the hurricane season “will trickle down for quite some time,” and noted that this could be seen particularly in the demand for standby. The prediction continues to be borne out as standby sales grew 8% over Q1 2018, the largest Q2 QoQ growth for standby since 2006.
METHODOLOGY: Since 1998, Power Systems Research (PSR) has been continuously maintaining its PowerTrackerTM series of syndicated surveys, conducting 1,400 interviews each quarter among three key respondent groups in North America: gen-set dealers and distributors, businesses and households.
We conduct 200 interviews each quarter among dealers and distributors; the focus of this survey is on recent sales and market observations for the current quarter as well as expectations for the coming quarter.
Our Business Consumer survey consists of 900 interviews per quarter among a wide cross section of businesses to gather their input concerning ownership, usage trends and motivating factors for purchase, including any concerns about the reliability and availability of electric power.
Finally, our Household Consumer survey consists of 300 interviews per quarter to learn more about gen-set ownership trends among households and monitor the likelihood of a gen-set purchase.
Dealer/Distributor Outlook for Q3 2018
Dealers and distributors anticipate redistributed growth in Q3 2018. Whereas this quarter we saw robust growth in the middle ranges with some tapering on the ends, dealers expect Q3 to show strong growth in the lower ranges (12% for <10kW and 8% for 10-20kW) that steadily declines to low single digits in the 51kW-2MW range, with slightly negative growth in the 2MW-5MW range. Gaseous fueled gen-sets are expected to make the greatest gains, with the lowest growth being about 2% in the 101-300kW range and the greatest growth being 12.5% in the <10kW range.
The outlook for Diesel-powered gen-sets in Q3 2018 is relatively weak compared to previous years. The greatest growth anticipated is about 5% in the <20kW ranges, with expectations of -2.5% to 2% growth in the 21kW-5MW ranges.
When asked, “Why do you expect sales to change in the upcoming quarter?” comments from dealers focused on the following market observations:
- Ongoing Camping and Upcoming Hurricane Seasons: As the summer continues, dealers attribute their positive expectations for smaller gen-sets to the ongoing outdoor activities season and a desire by everyone to be prepared for the upcoming hurricane season. One dealer even said he had a big influx of customers from other states who had come just to find available generators for the hurricane season. This is where we see expectations of strong demand for portable gen-sets and continued “trickle down” growth in demand for standby gen-sets.
- End of Fiscal Year: A number of dealers attributed changes in the coming quarter to end-of-fiscal-year effects. Many municipalities finished their fiscal year in June and put in orders to try to use up their budgets. Due to these effects, dealers are anticipating increased activity in the coming quarter to meet that demand, or decreased activity as that demand subsides.
- Strong Business Outlook: Although one dealer mentioned new tariffs as being a cause for concern for his business and his customers, the general consensus among dealers was that the economy is doing well and demand for their products is up. An exceptionally large number of respondents reported that they had hired new sales staff or opened new facilities (warehouses, stores, etc.) in what could be taken as a sign that dealers expect the increased post-hurricane demand to be some sort of new standard.
When asked, “What changes have you recently noticed among particular customer groups or product categories within your market?” there were several comments that emerged as common themes. Many of these are comments that have carried from quarter to quarter but the following is a sampling of some key observations:
- We had far fewer complaints from dealers about online overseas competition this quarter. Instead, we heard a new take on the role of the internet in the market. A number of dealers told us that “the age of the consumer has gone down from 30-50 years old to now mid to early 20’s.” Additionally, instead of using the internet to find the cheapest option, which is typically from overseas, they are using it to gather more information before they go into a dealer to pick out a generator they have already decided on. While competition from overseas will certainly continue to be a factor, this step away from minimized price toward optimized value will be worth watching.
- There was an uptick in non-residential orders this quarter, partly attributable to the typical construction and government purchasing cycles. But two areas that dealers identified as new sources of growth were an increasing demand for gen-set-powered air conditioning on commercial fishing boats and an increased demand for standby generators on cannabis farms. The debate over marijuana legalization typically doesn’t touch on the effects to manufacturing, but we will be keeping an eye on this.
The sales index continued its mid-single-digit growth, typical of what was observed in past quarters. It seems that a new plateau is being established, similar to what we saw at the end of 2011. Based on the rise in the inventory index, as well as the reports of expanding dealer facilities, it seems that OEMs have been able to meet the increased demand, and dealers expect growth to continue from this new level.
Some analysts have stated that severe weather was unusually calm pre-2017, and that last year’s hurricanes are going to be more typical as we go forward. It will be interesting to see how long repeating severe hurricane seasons can create higher plateaus rather than peaks. PSR
Tyler Wiegert is a Project Manager at Power Systems Research (PSR), a market research and consulting company headquartered in St. Paul, MN.
