Investment research report for POOL

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

Pool Corporation (POOL) is the world’s largest wholesale distributor of swimming pool supplies, equipment, and related leisure products. The company operates over 400 sales centers across North America, Europe, and Australia, serving residential and commercial pool owners, builders, and retailers.

Key Insights for Long-Term Investors

  1. Industry Leadership and Competitive Advantages:
  2. POOL is the dominant leader in the pool supply industry, with a strong competitive position stemming from its scale, distribution network, customer service focus, and operational excellence.
  3. The company has consistently gained market share, driven by strategic investments in technology, logistics, and customer-focused initiatives.

  4. Resilient Business Model and Growth Opportunities:

  5. While new pool construction is cyclical, the majority of POOL’s business comes from the recurring maintenance, repair, and renovation of the large and growing installed base of pools, providing stability and resilience.
  6. The company is well-positioned to capitalize on favorable long-term trends in outdoor living and pool ownership, supported by demographic shifts and consumer preferences.

  7. Financial Strength and Shareholder Returns:

  8. POOL has a strong balance sheet, cash flow generation, and disciplined capital allocation, allowing for investments in growth while also returning capital to shareholders through dividends and share repurchases.
  9. The company has demonstrated impressive pricing power and the ability to expand margins through strategic pricing actions, supply chain initiatives, and operating leverage.

Risks and Challenges

  • Cyclical factors like weather, interest rates, and economic conditions can impact demand for new pool construction and discretionary spending in the short-term.
  • The sustainability of the recent exceptional margin performance and the potential risks from a normalization in demand are areas of focus for analysts and investors.
  • The company faces competition from larger diversified industrial distributors, as well as smaller specialty players in adjacent segments.

Back to Table of Contents

Valuation Analysis

Price Target Analysis

The following is the price target analysis of company POOL:

PE ratio:
– Low: 20.21084686448708
– Base: 29.46200333892351
– High: 38.71315981335994

PB ratio:
– Low: 12.133615435871906
– Base: 19.783841588051637
– High: 27.434067740231367

EPS Growth:
– Low: 10.12%
– Med: 18.73%
– High: 23.88%

DPS Growth:
– Low: 16.74%
– Med: 18.08%
– High: 19.29%

Recommendation

Unable to provide price targets since this company’s financials are highly unstable. We recommend not to hold this stock in your portfolio.

Back to Table of Contents

Industry and Competitors Analysis

POOL Corporation (POOL) and Industry Overview

POOL Corporation (POOL) operates in the industrial distribution industry, specifically distributing swimming pool supplies, equipment, and related leisure products. Some key points about POOL and its competitors:

  • POOL is a leading distributor of pool supplies and equipment in the United States and internationally. It operates a network of over 400 sales centers.

  • Major competitors in the pool supplies distribution space include companies like Fastenal (FAST), MSC Industrial Direct (MSM), Ferguson (FERG), and Watsco (WSO). These companies distribute industrial, construction, and HVAC supplies in addition to some pool/plumbing products.

  • Compared to diversified industrial distributors like FAST, MSM, FERG, and GWW (W.W. Grainger), POOL has a more focused product line centered around pool supplies and equipment.

  • In terms of financial metrics like gross margins, operating margins, and return on equity, POOL’s profitability appears competitive versus peers, suggesting a relatively strong competitive positioning in its niche market.

Smaller and Specialty Competitors

  • Some smaller, more direct competitors include companies like AIT (Applied Industrial Technologies) which has some exposure to pool/plumbing supplies, and specialty distributors like BXC (BlueLinx) and CNM (Core & Main) in adjacent building products segments.

Competitive Positioning

Overall, while POOL faces competition from larger diversified industrial distributors, its focused business model and leading position in the U.S. pool supplies market provides a differentiated competitive positioning in this niche industry segment.

Back to Table of Contents

Chart of Competitors

"Chart of Competitors"

Back to Table of Contents

Financial Analysis

Financial Strength

Pool Corp has a strong balance sheet with a current ratio consistently above 2, indicating good liquidity. The company has a moderate debt level, with a debt-to-equity ratio around 1 in recent years. Interest coverage ratios are healthy, mostly above 10x, showing ability to service debt obligations.

Potential for Growth

Revenue growth has been inconsistent, with some years showing strong growth (e.g. 2021, 2020 Q2) and others declining revenues. Net income growth has also been volatile, but the company has demonstrated an ability to grow earnings at a high rate during periods of strong demand. Analyst estimates project modest revenue growth of around 5-6% annually over the next few years.

Competitive Advantage

As a leading distributor of pool supplies and equipment, Pool Corp likely benefits from economies of scale and a strong distribution network. The company’s focus on the pool industry provides some insulation from broader economic cycles.

Quality of Management

Profitability metrics like return on equity and return on assets have been strong historically, indicating effective use of capital and assets. The company has generally grown its free cash flow and maintained a reasonable payout ratio, suggesting disciplined capital allocation.

Shareholder Friendliness

Pool Corp pays a modest dividend, with a current yield around 0.3%. The dividend has grown over time, though the payout ratio fluctuates based on earnings volatility. Share repurchases do not appear to be a major use of capital for the company.

Valuation

The stock’s P/E ratio has varied significantly based on earnings volatility but is currently around 25x forward earnings estimates. Price-to-free-cash-flow has also been volatile but is presently around 38x. Analysts’ EPS estimates imply a forward P/E of around 25x for 2024, which could be considered a premium valuation but may be justified by the company’s growth prospects and competitive position.

In summary, Pool Corp appears to have a solid financial base, some competitive advantages in its industry niche, and opportunities for further growth, though past performance has been uneven. The quality of management seems sound based on capital allocation. The valuation reflects optimism about future growth but may be justifiable if those growth expectations are met.

Back to Table of Contents

Chart of Key Per Share Metrics

"Chart of Key Per Share Metrics"

Back to Table of Contents

Chart of Absolute Metrics

"Chart of Absolute Metrics"

Back to Table of Contents

Earnings Call Multi-Year Analysis

Pool Corporation’s Competitive Advantages and Resilient Business Model

Pool Corporation is the dominant leader in the pool supply industry with strong competitive advantages stemming from its scale, distribution network, customer service focus, and operational excellence. This has allowed the company to consistently gain market share.

While new pool construction is cyclical, the majority of Pool Corp’s business comes from the recurring maintenance, repair, and renovation of the large and growing installed base of pools. This provides stability and resilience to the business model.

Impressive Pricing Power and Margin Expansion

The company has demonstrated impressive pricing power and the ability to expand margins through strategic pricing actions, supply chain initiatives, and operating leverage from technology investments and capacity expansion.

Long-Term Focused Investments

Management takes a long-term view, continuing to invest in growth initiatives like technology, logistics, acquisitions, and new sales centers, even during periods of slower demand. This positions the company for sustained market share gains.

Strong Financial Position and Capital Allocation

Pool Corp has a strong balance sheet, cash flow generation, and disciplined capital allocation, allowing for investments in growth while also returning capital to shareholders through dividends and buybacks.

Resilience to Cyclical Factors

While cyclical factors like weather, interest rates, and economic conditions can impact demand in the short-term, management expresses confidence in the long-term structural tailwinds supporting outdoor living and pool ownership trends.

Analyst Perspectives

Analysts seem focused on probing the sustainability of the recent exceptional margin performance and the potential risks from a normalization in demand, though management defends the company’s competitive positioning and long-term outlook.

Overall, the key insight is that Pool Corporation appears well-positioned as the industry leader to capitalize on favorable long-term trends through its strategic initiatives, operational excellence, and financial strength, despite potential cyclical fluctuations.

Back to Table of Contents

Financial Statements Multi Year

Revenue declined in recent quarters (7% in Q2 2024, 9% in Q1 2024) due to lower sales volumes from reduced pool construction and discretionary activity, after strong growth in prior years. However, maintenance-related sales remained relatively stable, indicating steady demand for non-discretionary products.

Profitability and Margins

Gross margins faced pressure, declining to around 30% in recent quarters, impacted by higher product costs and changes in product mix. Operating margins also contracted due to lower sales and higher operating expenses related to investments in technology, facilities, and wages. Net income and earnings per share declined significantly in recent quarters (22% and 21% decrease in Q2 2024, respectively).

Financial Position and Cash Flow

The company maintained a strong balance sheet with ample liquidity and manageable debt levels (leverage ratio of 1.36x in Q2 2024). Cash flow from operations remained solid, funding debt reduction, share repurchases, dividends, and capital expenditures.

Outlook and Guidance

For full-year 2024, the company expects flat to slightly positive sales growth, with gross margin around 30% and operating margin around 13%. Earnings per share guidance for 2024 reflects the impact of macroeconomic conditions and mixed weather on the business.

The company experienced a moderation in demand after the pandemic-driven surge, but its maintenance-related business remains resilient. Strategic initiatives include operational efficiency, financial discipline, and investments in technology and customer-focused initiatives. The company plans to continue opportunistic share repurchases and maintain a prudent capital structure.

Overall, while recent quarters have been challenging, Pool Corporation maintains a strong financial position and is well-positioned to navigate the current environment through operational efficiency, strategic investments, and disciplined capital allocation, positioning it for long-term growth and shareholder value creation.

Back to Table of Contents

Insider Trading Analysis

Long-term Patterns

The CEO, Manuel J. Perez de la Mesa, has been actively trading his company shares over the past several years. He has engaged in a mix of stock option exercises, stock sales, and stock gifts. Other key insiders like the CFO (Kenneth G. St Romain) and other executives have also been regularly trading their shares, though not to the same extent as the CEO. Overall, there appears to be significant insider selling activity, with insiders taking advantage of the stock’s strong performance to monetize their holdings.

Short-term Patterns

In the most recent 1-2 years, the CEO has continued to exercise stock options and sell a significant portion of his shares, often in large block transactions. Other executives have also been selling shares, though generally at lower volumes compared to the CEO. The level of insider selling activity suggests insiders may be somewhat cautious about the company’s near-term prospects, even as they continue to hold substantial equity stakes.

Implications

The high level of insider selling, particularly by the CEO, could be a potential concern for long-term investors. It may signal insiders’ reduced confidence in the company’s future performance. However, the insiders still maintain large equity stakes, suggesting they remain invested in the company’s long-term success. Short-term investors should monitor the continued insider trading activity and assess whether it signals any potential changes in the company’s outlook or strategy.

Overall, the insider trading patterns suggest a mix of factors, with insiders taking advantage of the stock’s appreciation while potentially signaling some caution about the near-term future. Long-term investors should closely follow these developments and assess the implications for the company’s long-term prospects.

Back to Table of Contents

Management Compensation Benchmark Analysis

Base Salary Portion of Total Compensation

Based on the executive compensation details provided, the key insights for a long-term investor in POOL are:

The base salary portion of total compensation for POOL’s executives is on average 29.18%, which is lower than the average for FAST (38.58%) and MSM (39.93%), but higher than the average for GWW (32.53%) and WSO (40.61%). This suggests that POOL’s executive compensation structure is more heavily weighted towards variable, performance-based compensation compared to some of its peers.

CEO Compensation Structure

The CEO’s base salary as a percentage of total compensation is relatively low, ranging from 9.58% to 14.59% over the years reported. This indicates that a significant portion of the CEO’s compensation is tied to the company’s performance through stock awards and incentive plan compensation.

Other Senior Executives’ Compensation Structure

The other senior executives at POOL also have a significant portion of their compensation tied to performance, with base salaries ranging from 13.11% to 23.16% of total compensation. This aligns their interests with those of shareholders.

Consistency in Compensation Approach

POOL has maintained a consistent approach to executive compensation over the years, with a focus on variable, performance-based pay. This suggests that the company’s leadership is committed to creating long-term shareholder value.

Overall, the executive compensation structure at POOL appears to be well-aligned with the interests of long-term shareholders, with a significant portion of pay tied to the company’s performance. This is a positive sign for investors looking for a company that prioritizes long-term value creation.

Back to Table of Contents

Proxy Statement Analysis

Executive Compensation

The company has made changes to its 2023 executive compensation program to better align it with long-term shareholder value creation, such as introducing a performance-based equity award tied to 3-year adjusted diluted EPS growth. A significant portion of executive compensation is “at-risk” and tied to performance metrics, aligning the interests of executives with those of shareholders. The Compensation Committee considers market data, individual performance, and shareholder alignment when setting executive pay. The company has sound governance practices around executive compensation, including stock ownership guidelines, clawback policies, and prohibitions on hedging and pledging.

Corporate Governance

The Board is led by an independent Chairman and has committees composed entirely of independent directors, promoting effective oversight and accountability. The Board and its committees actively oversee risk management, including strategic, financial, regulatory, and operational risks, which is crucial for long-term value creation. The company has a robust shareholder engagement program and considers shareholder feedback when making compensation decisions, demonstrating a commitment to shareholder interests. The company’s corporate governance documents are publicly available, promoting transparency and accountability.

Overall, the information suggests that Pool Corporation has a well-designed executive compensation program and sound corporate governance practices that align with creating long-term shareholder value. As a long-term investor, these factors can provide confidence in the company’s commitment to sustainable growth and shareholder interests.

Back to Table of Contents

News Analysis for Pool Corporation

Positives

Pool Corp has been reporting strong earnings growth, beating estimates consistently over the past few quarters driven by high demand for pool supplies and equipment during the pandemic. The company has been benefiting from expansion initiatives like acquisitions and new pool construction projects. It enjoys competitive advantages like economies of scale and a robust distribution network. Pool Corp has been raising its dividend consistently and has a strong balance sheet. Many analysts are optimistic about its long-term growth prospects as pool ownership rises.

Potential Concerns

Valuation looks stretched after the big stock run-up, with some analysts cautioning about the high valuation. Input cost inflation and supply chain disruptions could pressure margins going forward. Demand could normalize or decline as the pandemic subsides and outdoor activity trends change. Housing market slowdown or recession could dampen demand for new pool construction. The company faces stiff competition in the highly fragmented pool supplies market.

Overall, while Pool Corp has executed very well and benefited from favorable trends, the high valuation and potential normalization of demand are risks investors need to watch out for. A long-term view on the sustainability of growth and competitive advantages is warranted given the cyclical nature of the business.

Back to Table of Contents

Technical Indicators Analysis

Next Week Trading

Based on the recent technical indicators, the stock appears to be in a bearish trend in the short-term. The 20-day TEMA has been declining, indicating a potential downward momentum. The RSI is also in the neutral range, suggesting the stock may be overbought and due for a pullback. Traders may consider taking a cautious approach and look for opportunities to sell or short the stock in the next week.

Resistance and Support Levels

The stock has faced resistance around the $420 level, as seen in the recent price action. The 50-day and 200-day SMAs also provide potential resistance levels at $393.44 and $366.73, respectively. On the support side, the stock has found support around the $400 level, with the 20-day SMA providing additional support at $403.68.

Short-Term Investor

For short-term investors, the current technical indicators suggest a cautious approach. The declining TEMA and neutral RSI indicate a potential bearish trend in the near-term. Short-term investors may consider taking profits or even considering short positions if the stock continues to decline and breaks below the $400 support level.

Long-Term Investor

For long-term investors, the overall technical picture remains relatively strong. The 200-day SMA is still above the current price, and the stock has shown a consistent upward trend over the long-term. However, the recent pullback and the potential for short-term bearishness may warrant a more cautious approach in the near-term. Long-term investors may consider holding their positions or looking for opportunities to add to their positions on any significant dips.

Back to Table of Contents

Chart of Valuation History

"Chart of Valuation History"

Back to Table of Contents

Financial Statements Annual

Financial Statements Annual 2024 Q2

Net sales declined 10% in 2023 compared to 2022, after significant growth in the prior 3 years (15% CAGR from 2019 to 2023). The decline was driven by lower volumes of discretionary pool products due to reduced pool construction and discretionary replacement activity, partially offset by a 3-4% benefit from inflationary price increases. Maintenance-related sales remained stable throughout the year, indicating steady demand for non-discretionary products.

Profitability

Gross profit decreased 14% in 2023, with gross margin declining 130 basis points to 30.0%. Operating expenses increased 6% but were managed in line with lower sales volumes. Operating income decreased 27%, with operating margin declining 310 basis points to 13.5%. Net income declined 30% and earnings per share decreased 29% to $13.35 per diluted share.

Cash Flow and Balance Sheet

Cash flow from operations was $888 million, funding debt reduction, share repurchases, dividends, and capital expenditures. Inventory levels decreased 14% compared to 2022, consistent with inventory reduction goals. Total debt outstanding decreased $333 million to $1.1 billion at the end of 2023.

Outlook

The company expects flat to low single-digit sales growth in 2024, with continued strength in maintenance-related sales offset by lower volumes of discretionary products. Gross margin is expected to be around 30.0% for the full year, with operating margin around 13.0%. Earnings per share are projected in the range of $13.10 to $14.10, including an estimated $0.10 benefit from tax accounting.

Overall, the financial results reflect the moderation of the pandemic-driven demand surge, with the company well-positioned to navigate the current market environment through operational efficiency, financial discipline, and strategic investments.

Financial Statements Annual 2023 Q2

Strong Financial Performance

Net sales increased 17% to $6.18 billion in 2022 compared to $5.30 billion in 2021, driven by inflationary price increases, sustained demand for outdoor living products, and market share gains. Gross profit reached $1.93 billion, a 20% increase over 2021, with gross margin improving 80 basis points to 31.3%. Operating income increased 23% to $1.03 billion, with operating margin expanding 90 basis points to 16.6%. Net income grew 15% to $748.5 million, and earnings per diluted share increased 17% to $18.70.

Operational Efficiency and Expense Management

Base business operating expenses rose only 6% compared to 12% base business gross profit growth, demonstrating the company’s ability to leverage its existing infrastructure. The company maintained disciplined expense management, with operating expenses as a percentage of net sales declining 10 basis points to 14.7%.

Strong Cash Flow and Balance Sheet

Cash provided by operations was $484.9 million, up $171.4 million compared to 2021. Total debt outstanding increased to $1.39 billion at the end of 2022, as the company utilized debt to fund share repurchases, dividends, and investments in working capital. The company maintained a prudent capital structure, with an average total leverage ratio of 1.37x as of December 31, 2022.

Shareholder Returns

The company returned $471.2 million to shareholders through share repurchases and $150.6 million through quarterly cash dividends. The company had $230.2 million remaining under its current share repurchase authorization as of February 17, 2023.

Outlook and Risks

The company expects sales to be flat to down 3% in 2023, with a projected gross margin of approximately 30% and operating margin of around 15%. Risks include macroeconomic conditions, interest rate and inflation impacts, supply chain disruptions, and weather-related factors.

Overall, the financial statements demonstrate Pool Corporation’s ability to navigate a challenging environment, maintain operational efficiency, and deliver strong financial results while returning capital to shareholders.

Financial Statements Annual 2022 Q2

Strong Financial Performance

Net sales increased 35% to $5.3 billion in 2021 compared to 2020, driven by robust customer demand for outdoor living products. Gross profit reached $1.6 billion, a 43% increase over 2020, with gross margin improving 180 basis points to 30.5%. Operating income increased 79% to $832.8 million, with operating margin expanding 390 basis points to 15.7%. Net income increased 77% to $650.6 million, and earnings per share (diluted) grew 78% to $15.97.

The COVID-19 pandemic led to increased consumer spending on home improvement, including outdoor living spaces, which benefited Pool Corporation’s sales. The company estimates new pool construction increased by 25% in 2021 compared to 2020, reaching approximately 120,000 units. Favorable weather conditions across most of the United States also contributed to the strong sales growth.

Operational Efficiency and Investments

The company made significant investments in inventory to meet strong customer demand and manage supply chain disruptions. Operating expenses increased 18%, but as a percentage of net sales, declined 210 basis points, reflecting improved operating leverage. The company continued to invest in technology, including a multi-year project to transform its enterprise systems and capabilities.

Liquidity and Capital Allocation

Cash provided by operations was $313.5 million, which funded acquisitions, share repurchases, and dividend payments. Total debt outstanding increased to $1.2 billion, primarily to fund the acquisition of Porpoise Pool Patio Inc. The company plans to continue using cash for opportunistic share repurchases and dividend payments.

Outlook and Guidance

For 2022, the company expects sales growth of 17% to 19%, with continued elevated demand for residential pool products and the impact of recent acquisitions. Gross margin is expected to be relatively neutral for the full year, with modest improvements in the first half and declines in the latter half. The company projects 2022 earnings in the range of $17.19 to $17.94 per diluted share, including an estimated $0.19 benefit from tax accounting.

Overall, Pool Corporation delivered exceptional financial results in 2021, driven by favorable industry trends and its ability to capitalize on increased consumer demand for outdoor living products. The company’s strategic investments, operational efficiency, and disciplined capital allocation position it well for continued growth and shareholder value creation.

Back to Table of Contents

Financial Statements Quarterly

Financial Statements Quarterly 2024 Q2

Revenue Decline

Net sales decreased 7% in the first quarter of 2024 to $11.2 billion, compared to $12.1 billion in the first quarter of 2023. This was driven by lower sales volumes from reduced pool construction and discretionary activity, partially offset by the benefit of inflationary product cost increases.

Gross Margin Pressure

Gross margin decreased 40 basis points to 30.2% in the first quarter of 2024 compared to 30.6% in the same period of 2023. This was impacted by higher product costs, changes in product mix, and a higher concentration of sales to larger customers.

Operating Expense Management

Operating expenses increased 3% in the first quarter of 2024 compared to the prior year period, driven by higher rent, facility costs, wages, insurance, and technology investments. As a percentage of net sales, operating expenses increased to 20.5% from 18.6%.

Profitability Decline

Net income decreased 22% to $78.9 million in the first quarter of 2024 compared to $101.7 million in the first quarter of 2023. Earnings per diluted share decreased 21% to $2.04, or $1.85 excluding the impact of tax benefits from stock-based compensation.

Liquidity and Leverage

The company had $67.9 million in cash and cash equivalents as of March 31, 2024. Total debt outstanding was $979.2 million, with the company’s average total leverage ratio at 1.36x as of the end of the quarter, well within its target range of 1.5x to 2.0x.

Outlook

For the full year of 2024, the company expects sales to be flat to slightly positive compared to 2023, with gross margin around 30% and operating margin around 13%. The company plans to continue opportunistic share repurchases under its authorized program.

Overall, the results reflect the impact of macroeconomic conditions and mixed weather on Pool Corporation’s business, leading to lower sales and profitability in the first quarter. The company is focused on managing costs and maintaining a strong financial position to navigate the current environment.

Financial Statements Quarterly 2024 Q1

Net Sales

Net sales decreased 9% in Q3 2023 compared to Q3 2022, following strong growth in the prior year periods. The core business remained stable, with weakness in pool construction-related activities offsetting steady demand for maintenance products.

Gross Profit

Gross profit decreased 15% in Q3 2023, with gross margin declining 210 basis points to 29.1%. This was driven by selling through prior year’s lower cost inventory purchases.

Operating Expenses

Operating expenses were well managed, decreasing 2% in Q3 2023, though as a percentage of sales they increased to 15.9% from 14.8% in the prior year quarter.

Operating Income

Operating income decreased 26% in Q3 2023, with operating margin declining to 13.2% from 16.3% in Q3 2022. However, operating income grew at a 17% CAGR from Q3 2019 to Q3 2023.

Net Income

Net income decreased 27% in Q3 2023, with diluted EPS declining 27% to $3.51. Excluding the impact of tax benefits, diluted EPS decreased 26%.

Year-to-Date Performance

For the first 9 months of 2023, net sales declined 11%, with gross margin down 170 basis points to 30.1%. Operating expenses were flat year-over-year.

Balance Sheet and Liquidity

The company has a strong balance sheet, with total debt of $1.03 billion as of September 30, 2023, down from $1.51 billion a year earlier. It has ample liquidity through its credit facilities to fund operations and growth initiatives.

Outlook

Management expects full year 2023 sales to be down around 10% compared to 2022, with gross margin in line with the long-term target of around 30%. Diluted EPS is projected in the range of $13.15 to $13.65, including $0.15 of tax benefits recognized year-to-date.

Financial Statements Quarterly 2023 Q4

Net Sales

Net sales decreased 10% in Q2 2023 compared to Q2 2022, following 15% growth in Q2 2022 and 40% growth in Q2 2021. This reflects a slow start to the swimming pool season, cautious consumer sentiment, and negative impacts from cooler weather.

Gross Profit

Gross profit decreased 15% in Q2 2023 compared to Q2 2022, with gross margin declining 180 basis points to 30.6%. This reflects a normalization from the higher inflation-driven gross margins in the prior year.

Operating Expenses

Operating expenses were well-managed, increasing only 1% in the first half of 2023 compared to the prior year period, as the company offset inflationary pressures through productivity actions.

Net Income and Earnings per Share

Net income decreased 24% in Q2 2023 and 31% in the first half of 2023 compared to the prior year periods, driven by the lower sales and gross margins. Earnings per diluted share decreased 23% in Q2 2023 and 30% in the first half of 2023.

Balance Sheet and Liquidity

The company’s balance sheet and liquidity remain strong, with total debt of $1.18 billion at June 30, 2023, down from $1.60 billion a year earlier. The company has ample available borrowing capacity to fund operations, acquisitions, dividends, and share repurchases.

Outlook for 2023

For the full year 2023, the company now expects sales to be down around 10% compared to 2022, versus its prior expectation of a mid-single digit decline. Gross margin is expected to be around 30% for the full year, in line with the company’s long-term outlook.

In summary, Pool Corporation faced a challenging start to 2023 due to weather and macro conditions, leading to lower sales and profitability. However, the company continues to maintain a strong financial position to navigate the current environment and invest for long-term growth.

Financial Statements Quarterly 2023 Q3

Net Sales

Net sales decreased 15% to $1.21 billion compared to the first quarter of 2022, following strong growth in the prior year periods. This was primarily due to unfavorable weather conditions in the western U.S. markets, which negatively impacted new pool construction and maintenance-related product sales.

Gross Profit

Gross profit decreased 17% to $369.8 million, with gross margin declining 110 basis points to 30.6%. The prior year’s gross margin benefited more from inflation and price increases, while the current quarter’s margin is trending more in line with the company’s long-term annual gross margin outlook of around 30%.

Operating Expenses

Operating expenses increased 6% to $224.0 million, with the largest drivers being higher rent, facility costs, labor costs, and investments in customer-focused initiatives. As a percentage of net sales, operating expenses increased to 18.6% from 15.0% in the prior year quarter.

Operating Income

Operating income decreased 38% to $145.8 million, with operating margin declining to 12.1% from 16.7% in the prior year quarter. This was primarily due to the lower sales and gross margin, as well as the increase in operating expenses.

Net Income and Earnings per Share

Net income decreased 43% to $101.7 million, and diluted earnings per share decreased 41% to $2.58. Excluding the impact of tax benefits from stock-based compensation, adjusted diluted EPS decreased 42% to $2.46.

Balance Sheet and Liquidity

The company’s balance sheet and liquidity remain strong, with $26.5 million in cash and $1.37 billion in total debt as of March 31, 2023. The company’s leverage ratio of 1.48x remains within its target range.

Outlook

The company expects full-year 2023 sales to be down in the mid-single digits compared to 2022, with gross margin expected to be around 30% for the full year. Diluted EPS is projected to be in the range of $14.62 to $16.12, including the year-to-date tax benefits.

In summary, the first quarter results were negatively impacted by unfavorable weather conditions, particularly in the western U.S. markets, leading to lower sales, profitability, and earnings compared to the prior year. However, the company’s balance sheet and liquidity remain strong, and management has provided updated guidance for the full year.

Back to Table of Contents

Earnings Call Analysis

Earnings Call Analysis 2024 Q1

Key Insights for Long-Term Investors

  1. Pool Corporation is the clear leader in the pool supply industry, with a dominant market position and strong competitive advantages. They continue to gain market share through their extensive distribution network, customer service focus, and investments in technology.

  2. The company is navigating a challenging macroeconomic environment, with higher interest rates and inflation impacting new pool construction. However, the majority of their business (over 60%) is non-discretionary maintenance and repair, which provides stability.

  3. Management is taking a long-term view, continuing to invest in growth initiatives like technology platforms, capacity expansion, and acquisitions. These investments may pressure near-term margins but are expected to drive long-term value creation.

  4. The company has a strong track record of execution, cash flow generation, and capital allocation. They plan to maintain a balanced approach of investing for growth, returning capital to shareholders, and maintaining a prudent balance sheet.

  5. While new pool construction is expected to be down 10% in 2024, the company sees opportunities in the large and growing installed base of pools, renovation/remodel activity, and continued share gains in commercial and DIY markets.

  6. Analysts seem to be pushing management on the near-term margin outlook and pace of technology investments. Management is defending their long-term approach, prioritizing sustainable growth over short-term margin optimization.

Overall, Pool Corporation appears to be well-positioned as the industry leader, with a focus on driving long-term value creation through strategic investments, despite near-term macroeconomic headwinds.

Earnings Call Analysis 2023 Q4

New Pool Construction and Installed Base

New pool construction is expected to be down around 30% in 2023, but the overall installed base of pools continues to grow, providing a stable maintenance and repair business.

Renovation and Remodel Demand

Renovation and remodel demand is outperforming new pool construction, and the company is well-positioned to capitalize on this trend with its broad product offering.

Operating Margins and Business Model

The company has been able to maintain strong operating margins despite the challenging environment, demonstrating the strength of its business model and operational efficiency.

Long-Term Positioning

The company is focused on capacity creation, technology investments, and customer experience, which should position it well for the long-term, even in a more tepid demand environment.

Competitive Landscape

While the competitive landscape remains dynamic, the company believes it is well-positioned to continue gaining market share due to its scale, product breadth, and customer-centric approach.

Outlook and Guidance

The company is being cautious in its commentary, not providing specific guidance for 2024, but expressing cautious optimism about the outlook, particularly if interest rates moderate.

Financial Position and Capital Allocation

The company’s inventory reduction efforts and focus on cash flow generation have strengthened its financial position, providing flexibility for capital allocation decisions.

Overall, the company appears to be navigating the current challenges well and positioning itself for long-term success, though the analyst questions suggest some caution around the potential for margin pressure and the competitive environment.

Earnings Call Analysis 2023 Q3

Weather and Macroeconomic Conditions

Weather and macroeconomic conditions have created headwinds, leading to a decline in sales, particularly in new pool construction. However, the company believes it is outperforming the industry in this area.

Mix Shift in New Pool Construction

The company is seeing a mix shift, with higher-end new pool construction remaining strong, while lower-end/entry-level new pool construction has been more impacted by higher interest rates and inflation.

Renovation and Remodel Market

The renovation and remodel market is faring better than new construction, though the company expects this to moderate as the backlog is worked through.

Operating Expense Management

The company has been able to manage operating expenses well, demonstrating the strength of its business model and execution. It continues to invest in growth initiatives like new sales centers and technology.

Financial Position and Capital Allocation

The company has a strong balance sheet and cash flow, allowing it to invest in the business, pay dividends, and buy back shares – positioning it well for the future.

Guidance and Long-Term Outlook

While the company has had to adjust its guidance, management expresses confidence in the long-term outlook and ability to outperform the competition due to its scale, talent, and access to capital. The analyst questions suggest some skepticism around the sustainability of the guidance revision and the potential for further downside, which the company attempts to address through detailed explanations.

Overall, the key insight is that Pool Corporation remains a well-positioned industry leader, but faces near-term challenges that it is navigating effectively, while maintaining confidence in the long-term growth potential of the business.

Earnings Call Analysis 2023 Q2

Weather had a significant impact on Q1 results

Weather had a significant impact on Q1 results, negatively affecting revenue by $60-70 million. Cooler and wetter weather in key markets like California and Arizona curtailed both construction and maintenance spending.

New pool construction expected to decline, but renovation/remodel holding up

New pool construction is expected to decline up to 30% in 2023 due to the weather, higher interest rates, and the end of COVID tailwinds. However, the renovation/remodel business appears to be holding up better.

Long-term growth prospects remain strong

The company remains confident in its long-term growth prospects, citing the continued desirability of pools and outdoor living, the growing installed base, and its ability to gain market share through its strong value proposition and customer experience.

Management focused on long-term investments and execution

Management is not making structural changes in response to the short-term challenges, preferring to stay focused on long-term investments and execution. They believe the current issues will pass while the fundamentals of the business remain intact.

Monitoring impact of changing lending environment

The company is closely monitoring the impact of the changing lending environment, which appears to be putting more pressure on the lower-end pool segment that relies more on financing.

Inventory management improving

Inventory management has improved, with the company making progress in reducing the elevated safety stock levels from last year. They expect to return to more normal inventory levels by the end of Q3.

Commitment to capital allocation priorities

The company remains committed to its capital allocation priorities, including continued tuck-in acquisitions and share repurchases, despite the near-term headwinds.

Overall, the key message is that Pool Corporation is taking a long-term view and not overreacting to the current short-term challenges, which they believe are largely weather-related. The company’s confidence in the underlying strength of the business and its ability to navigate these issues remains high.

Earnings Call Analysis 2023 Q1

Pool Corporation Earnings Call Insights

Pool Corporation has significantly outpaced the industry, growing revenue by 93% since 2019 through a combination of inflation, acquisitions, new pool construction, installed base growth, and market share gains.

The company expects new pool construction to decline 15-20% in 2023, while renovation and remodel activity may only see a modest 10-15% decline. This suggests the maintenance and replacement portion of the business remains resilient.

Pool Corporation is focused on providing best-in-class service and enhancing the customer experience, which has enabled them to continue gaining market share even as supply chain issues have normalized.

The company has a strong balance sheet and cash flow generation, allowing flexibility to invest in the business and return capital to shareholders through dividends and share buybacks.

Management seems cautious in their 2023 outlook, expecting flat to slightly lower sales, margin compression, and inflationary pressures on expenses. However, they believe they can maintain a 15% operating margin through disciplined expense management.

Analysts seem to question the magnitude of the expected sales decline and the company’s ability to flex expenses, but management expresses confidence in their ability to navigate a more challenging environment.

Overall, the key insights suggest Pool Corporation is a well-run business with a strong competitive position, but investors should watch for any signs of a more pronounced slowdown in demand or the company’s ability to maintain margins and profitability.

Earnings Call Analysis 2022 Q4

Maintenance and Repair of the Installed Pool Base

Maintenance and repair of the installed pool base is a stable and growing part of the business, accounting for around 60% of revenue. This segment continues to grow with the installed base and inflation.

New Pool Construction and Renovation Activity

New pool construction is expected to be down 10-15% in 2022 compared to 2021, but this decline is being offset by strong renovation and remodel activity as builders have available capacity.

Company’s Positioning and Outlook

The company is well-positioned to weather a potential downturn, with experienced management, flexible cost structure, and ability to gain market share from smaller competitors. Gross margins are expected to remain around 30% long-term.

Acquisitions and Retail/DIY Offerings

Acquisitions like Porpoise Pool & Patio provide opportunities to expand the company’s retail and DIY offerings, which could benefit if homeowners look to do more pool maintenance themselves in a weaker economy.

Balance Sheet and Strategic M&A

The company has a strong balance sheet and conservative leverage, providing flexibility for strategic M&A if attractive opportunities arise, even in a more challenging demand environment.

Potential Macroeconomic Impacts

Analysts probed on the potential impact of inflation, interest rates, and housing market slowdown, but the company expressed confidence in its ability to adapt and continue growing through various economic cycles.

Overall, the key takeaway is that Pool Corporation appears well-positioned as a market leader with a diversified business model and experienced management team to navigate potential economic headwinds.

Earnings Call Analysis 2022 Q3

Demand for new pools remains solid, though backlogs have come down from pandemic highs. The installed base of pools continues to grow, providing a strong recurring revenue stream.

Supply chain constraints have improved in many areas, but persist for certain products like variable speed pumps and automation. This is impacting sales volumes in some categories.

Pool Corporation has been able to manage inflation well, with pricing actions and operational improvements driving a 150 basis point increase in gross margins. Most of the inflation appears to be structural rather than transitory.

The company is focused on capacity creation through greenfield expansions, acquisitions, and technology investments to improve the customer experience. This positions them well to gain market share even in uncertain environments.

Europe is facing more challenging macroeconomic and weather conditions, but Pool Corporation remains committed to the long-term opportunity there.

The company has a strong balance sheet and disciplined capital allocation, allowing them to be opportunistic with M&A and share repurchases. They expect to generate significant free cash flow this year.

Overall, the call suggests Pool Corporation is well-positioned to navigate potential economic headwinds given the recurring nature of its business model, operational excellence, and strategic investments. The long-term outlook remains positive.

Earnings Call Analysis 2022 Q2

Demand Sustainability

Despite the supercharged growth in the last 2 years, the company believes there is a sustainable “tail” to the demand driven by factors like the southern migration, work-from-home trend, and tight housing market. The installed base of pools and the need for renovation/remodel provides a large non-discretionary market opportunity.

Pricing Power

The company has historically been able to pass through inflation in the industry, and expects this to continue. While some commodity-linked products may see some price elasticity, the company does not expect major price rollbacks, especially in equipment.

Market Share Gains

The company is relentlessly focused on gaining market share through investments in inventory, infrastructure, technology, and strategic acquisitions. Their customer-centric approach and execution capabilities position them well to continue gaining share.

Margin Expansion

The company has been able to expand gross margins through initiatives like pricing, acquisitions, and supply chain improvements. While margins may moderate in the back half, the company expects to maintain strong profitability.

Diversified Business Model

The company highlighted that new pool construction, while important, represents less than 20% of their business. The larger maintenance/repair and renovation/remodel segments provide more consistent and attractive margins.

Cautious Outlook

While the company is very encouraged by the current demand environment, they remain cautious about making long-term projections given uncertainties around weather, labor, and other economic factors.

Overall, the company appears well-positioned to continue capitalizing on the strong demand trends in the industry through its strategic investments, operational excellence, and diversified business model.

Earnings Call Analysis 2022 Q1

Strong Demand and Execution

Pool Corporation has seen exceptional demand and growth, with 2021 net sales reaching $5.3 billion, a 1.4 billion increase over 2020. This was driven by both acquisitions and 29% base business growth, showcasing the company’s strong execution.

Margin Expansion

Pool Corporation has been able to significantly expand its operating margins, reaching 15.7% in 2021, a 390 basis point improvement. This was driven by volume-related incentives, supply chain initiatives, pricing management, and product mix.

Acquisition Strategy

The acquisition of Porpoise Pool & Patio is a strategic move that provides Pool Corporation with a chemical packaging operation, a distribution business, and a franchisor of pool retail stores. This acquisition is expected to contribute around 5% to Pool Corporation’s revenue and EBITDA in 2022.

Outlook and Guidance

Pool Corporation provided guidance for 2022, expecting top-line growth of 17-19% and EPS of $17.19 to $17.94. This includes the impact of acquisitions, inflation, and continued investment in technology and automation to drive long-term growth.

Competitive Advantages

Pool Corporation’s scale, distribution network, and operating model provide competitive advantages that have allowed it to gain market share and maintain strong customer relationships, even as supply chain challenges persist.

Risks and Challenges

Labor constraints and supply chain disruptions, particularly for chemicals and products with computer chips, remain key challenges. However, Pool Corporation appears well-positioned to navigate these issues.

Overall, the call highlights Pool Corporation’s ability to capitalize on strong demand, execute operationally, and make strategic acquisitions to drive long-term growth and shareholder value. The company’s guidance and commentary suggest continued confidence in the industry’s outlook.

Earnings Call Analysis 2021 Q4

Demand Outlook Remains Strong

The company sees continued strong demand for pools, outdoor living products, and related services driven by favorable demographic trends, the work-from-home dynamic, and a healthy housing market. This suggests a positive long-term outlook.

Pricing Power and Margin Expansion

The company has been able to strategically price products to offset inflation, leading to significant gross margin expansion. Management believes they can maintain a good portion of these margin gains going forward.

Operational Execution and Scale Advantages

The company’s large scale, strong balance sheet, and operational expertise have allowed it to navigate supply chain challenges better than competitors, gain market share, and provide superior customer service. This suggests durable competitive advantages.

Capacity Expansion

The company and its customers are investing to expand production capacity, which could sustain the industry’s growth potential, though labor shortages remain a challenge.

Acquisition Strategy

The company continues to pursue a disciplined M&A strategy to expand its footprint and capabilities, which could further strengthen its market position long-term.

Capital Allocation

The company is balancing investments in the business, acquisitions, dividends, and share buybacks, suggesting a prudent approach to deploying capital.

Overall, the company appears well-positioned to capitalize on favorable long-term industry trends given its operational excellence, pricing power, and strategic initiatives. However, the sustainability of the current margin levels and the impact of potential normalization in demand bear close monitoring.

Earnings Call Analysis 2021 Q3

The pool industry appears to have entered a “new normal” with tailwinds from work-from-home trends, migration to the suburbs/Sunbelt, and increased demand for outdoor living spaces. This suggests the strong demand may be more sustainable long-term.

Gross margins have seen significant improvement, up 170 basis points in Q2. Management believes some of this margin expansion can continue, though likely not at the same pace as the short-term benefits from supply chain execution, inflation pass-through, and product mix changes.

Gross margins have seen significant improvement, up 170 basis points in Q2. Management believes some of this margin expansion can continue, though likely not at the same pace as the short-term benefits from supply chain execution, inflation pass-through, and product mix changes.

The company is leveraging its scale, network of sales centers, and strong balance sheet to gain market share from competitors during the supply chain constraints. This suggests the company may be able to sustain higher market share gains.

The company is leveraging its scale, network of sales centers, and strong balance sheet to gain market share from competitors during the supply chain constraints. This suggests the company may be able to sustain higher market share gains.

Management is focused on capacity creation initiatives like technology, logistics, and labor productivity to drive operating leverage, which has allowed them to expand operating margins significantly.

Management is focused on capacity creation initiatives like technology, logistics, and labor productivity to drive operating leverage, which has allowed them to expand operating margins significantly.

The analysts were probing for potential risks, such as the sustainability of new pool construction demand, but management expressed confidence that the underlying demand drivers remain strong and a major economic downturn would be needed to see a meaningful pullback.

The analysts were probing for potential risks, such as the sustainability of new pool construction demand, but management expressed confidence that the underlying demand drivers remain strong and a major economic downturn would be needed to see a meaningful pullback.

The analysts were also focused on understanding the durability of the margin improvements, with management indicating some short-term benefits but also opportunities for longer-term margin expansion.

The analysts were also focused on understanding the durability of the margin improvements, with management indicating some short-term benefits but also opportunities for longer-term margin expansion.

Overall, the key message is that Pool Corp appears to be capitalizing on structural industry tailwinds in a way that is driving exceptional financial performance and potentially setting the stage for sustained above-average growth and profitability.

Back to Table of Contents

The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.