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CST: 18/08/2019 23:44:28   

Pool Corporation Reports Record First Quarter Results

122 Days ago

Highlights

  • Net sales growth of 2% for Q1 2019, with 1% growth in base business sales
  • Gross margin growth of 90 basis points and operating income growth of 14%
  • Q1 2019 diluted EPS increase of 7% to $0.80 or an increase of 11% to $0.59, excluding tax benefits
  • Updates 2019 earnings guidance range to $6.09 - $6.39 per diluted share from previous $6.05 - $6.35 range

COVINGTON, La., April 18, 2019 (GLOBE NEWSWIRE) -- Pool Corporation (NASDAQ/GSM:POOL) today reported record results for the first quarter of 2019.

“I am pleased to report a solid first quarter of 2019 despite wetter and cooler conditions throughout most of the quarter in some of our major markets. Our team’s strong execution, coupled with modest top line growth, delivered favorable results in the quarter,” said Peter D. Arvan, President and CEO.

Net sales increased 2% to a record $597.5 million in the first quarter of 2019 compared to $585.9 million in the first quarter of 2018, while base business sales grew 1%. Cooler and wetter weather, particularly in the western US, combined with a later Easter holiday impacted first quarter sales. Pool openings and normal spring early buys from customers in seasonal markets are influenced by the timing of the Easter holiday. In addition, sales were negatively impacted approximately 2% by the loss of a selling day compared to the first quarter of 2018 and 1% from unfavorable currency exchange rates.

Gross profit increased 5% to a record $174.6 million in the first quarter of 2019 from $166.1 million in the same period of 2018. Base business gross profit improved 4% over the first quarter of 2018, including a negative currency exchange impact of 1%. Gross margin increased 90 basis points to 29.2% in the first quarter of 2019 compared to 28.3% in the first quarter of 2018, reflecting benefits from our strategic inventory purchases in 2018 and lower customer early buys.

Selling and administrative expenses (operating expenses) increased 3% to $136.2 million in the first quarter of 2019 compared to the first quarter of 2018. Base business operating expenses were up 1% over the comparable 2018 period including a 1% currency benefit. As a percentage of net sales, base business operating expenses increased to 22.6% in the first quarter of 2019 compared to 22.5% in the first quarter of 2018.

Operating income for the first quarter of 2019 increased to a record $38.4 million, up 14% compared to the same period in 2018. Operating margin was 6.4% in the first quarter of 2019 and 5.7% in the same period in 2018, while base business operating margin improved 90 basis points from the prior year to 6.7% in the first quarter of 2019.

We recorded an $8.8 million tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, in the quarter ended March 31, 2019 compared to a tax benefit of $9.0 million realized in the same period of 2018.

Net income was $32.6 million in the first quarter of 2019 compared to $31.3 million in the first quarter of 2018. Earnings per share increased 7% to a record $0.80 per diluted share in the three months ended March 31, 2019 compared to $0.75 per diluted share in the same period of 2018. The benefit from ASU 2016-09 increased diluted earnings per share by $0.21 and $0.22 in the first quarters of 2019 and 2018, respectively. Excluding the impact from ASU 2016-09 in both periods, earnings per diluted share increased 11% to $0.59 in the first quarter of 2019 compared to $0.53 in the first quarter of 2018.

On the balance sheet at March 31, 2019, total net receivables, including pledged receivables, remained flat, while inventory levels grew 16% compared to March 31, 2018. The growth in inventory reflects strategic inventory purchases made in the second half of 2018 in advance of greater than normal vendor price increases, inventory from acquired businesses of $18.8 million and normal business growth as well as the slower start to the season. Total debt outstanding was $699.0 million at March 31, 2019, a $130.9 million increase from total debt at March 31, 2018.

Cash provided by operations was $28.8 million in the first three months of 2019 compared to $44.1 million used in operations in the first three months of 2018, an improvement of $72.9 million. The increase in cash provided by operations primarily relates to payments for pre-price increase inventory purchases in 2018 ahead of the 2019 season. Adjusted EBITDA (as defined in the addendum to this release) was $48.6 million and $43.4 million in the first quarters of 2019 and 2018, respectively. Interest expense increased compared to last year primarily due to higher debt levels and higher interest rates.

“As a result of the additional tax benefits realized from ASU 2016-09 in the first quarter, we are updating our earnings guidance to a range of $6.09 to $6.39 from $6.05 to $6.35 per diluted share. Other than the additional $0.04 per diluted share tax benefit, our earnings expectation for 2019 remains unchanged. Looking forward to the second quarter, we’re excited about the many opportunities to continue to provide exceptional service to our customers as we head into the heart of the swimming pool season,” said Arvan.

POOLCORP is the world’s largest wholesale distributor of swimming pool and related backyard products. As of March 31, 2019, POOLCORP operates 369 sales centers in North America, Europe, South America and Australia, through which it distributes more than 180,000 national brand and private label products to roughly 120,000 wholesale customers. For more information, please visit www.poolcorp.com.

This news release includes “forward-looking” statements that involve risks and uncertainties that are generally identifiable through the use of words such as “believe,” “expect,” “intend,” “plan,” “estimate,” “project,” “should” and similar expressions and include projections of earnings. The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date of this release, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. Actual results may differ materially due to a variety of factors, including the sensitivity of our business to weather conditions, changes in the economy and the housing market, our ability to maintain favorable relationships with suppliers and manufacturers, competition from other leisure product alternatives and mass merchants, excess tax benefits or deficiencies recognized under ASU 2016-09 and other risks detailed in POOLCORP’s 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) as updated by POOLCORP’s subsequent filings with the SEC.

CONTACT:
Curtis J. Scheel
Director of Investor Relations
985.801.5341
curtis.scheel@poolcorp.com


POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)

  Three Months Ended
March 31, 

  2019
  2018
Net sales  597,456     $ 585,900  
Cost of sales 422,825       419,827  
Gross profit 174,631       166,073  
Percent 29.2 %     28.3 %
           
Selling and administrative expenses 136,245       132,532  
Operating income 38,386       33,541  
Percent 6.4 %     5.7 %
           
Interest and other non-operating expenses, net 6,616       3,527  
Income before income taxes and equity earnings 31,770       30,014  
Income tax benefit (802 )     (1,279 )
Equity earnings in unconsolidated investments, net 65       46  
Net income $ 32,637     $ 31,339  
           
Earnings per share:          
Basic $ 0.83     $ 0.78  
Diluted $ 0.80     $ 0.75  
Weighted average shares outstanding:          
Basic 39,479       40,370  
Diluted 40,696       41,862  
           
Cash dividends declared per common share $ 0.45     $ 0.37  


POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)

      March 31,     March 31,     Change
      2019     2018     $   %
                       
Assets                    
Current assets:                    
  Cash and cash equivalents $ 28,581     $ 8,803     $ 19,778     225  %
  Receivables, net (1)   72,352       75,889       (3,537 )   (5 )
  Receivables pledged under receivables facility   240,775       238,707       2,068     1  
  Product inventories, net (2)   815,742       703,793       111,949     16  
  Prepaid expenses and other current assets (5)   16,116       23,714       (7,598 )   (32 )
Total current assets   1,173,566       1,050,906       122,660     12  
                       
Property and equipment, net   107,690       109,310       (1,620 )   (1 )
Goodwill   188,478       189,759       (1,281 )   (1 )
Other intangible assets, net   11,744       12,926       (1,182 )   (9 )
Equity interest investments   1,200       1,150       50     4  
Operating lease assets (3),(4),(5)   177,293             177,293     100  
Other assets   18,379       15,615       2,764     18  
Total assets $ 1,678,350     $ 1,379,666     $ 298,684     22  %
                       
Liabilities and stockholders’ equity                    
Current liabilities:                    
  Accounts payable (4) $ 472,487     $ 467,795     $ 4,692     1  %
  Accrued expenses and other current liabilities   47,658       45,504       2,154     5  
  Short-term borrowings and current portion of long-term debt   21,734       20,786       948     5  
  Current operating lease liabilities (3)   55,744             55,744     100  
Total current liabilities   597,623       534,085       63,538     12  
                       
Deferred income taxes   29,368       24,947       4,421     18  
Long-term debt, net   677,243       547,324       129,919     24  
Other long-term liabilities   26,469       23,525       2,944     13  
Non-current operating lease liabilities (3)   122,770             122,770     100  
Total liabilities   1,453,473       1,129,881       323,592     29  
Total stockholders’ equity   224,877       249,785       (24,908 )   (10 )
Total liabilities and stockholders’ equity $ 1,678,350     $ 1,379,666     $ 298,684     22  %


(1)  The allowance for doubtful accounts was $5.6 million at March 31, 2019 and $4.0 million at March 31, 2018.
(2)  The inventory reserve was $8.5 million at March 31, 2019 and $7.4 million at March 31, 2018.
(3)  We adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019. Upon adoption, we recorded operating lease assets and operating lease liabilities based on the present value of future lease obligations. We applied the practical expedient available in this guidance, which does not require the restatement of prior year balances.
(4)  Due to ASU 2016-02, our straight-line rent liability of $5.1 million, reported in Accounts payable under previous accounting guidance, offsets our Operating lease assets as of March 31, 2019.
(5)  As of March 31, 2019, we presented pre-paid rent of $4.7 million in Operating lease assets as required under the new guidance (presented in Prepaid expenses and other current assets as of March 31, 2018).



POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

   Three Months Ended
     
   March 31,
     
  2019   2018   Change
Operating activities                
Net income $ 32,637     $ 31,339     $ 1,298  
Adjustments to reconcile net income to net cash provided by (used in) operating activities                
  Depreciation   6,649       6,299       350  
  Amortization   375       470       (95 )
  Share-based compensation   3,259       3,321       (62 )
  Equity earnings in unconsolidated investments, net   (65 )     (46 )     (19 )
  Other   512       681       (169 )
Changes in operating assets and liabilities, net of effects of acquisitions:                
  Receivables   (103,122 )     (117,377 )     14,255  
  Product inventories   (128,206 )     (168,518 )     40,312  
  Prepaid expenses and other assets   (1,427 )     (3,843 )     2,416  
  Accounts payable   230,030       222,285       7,745  
  Accrued expenses and other current liabilities   (11,838 )     (18,760 )     6,922  
Net cash provided by (used in) operating activities   28,804       (44,149 )     72,953  
                 
Investing activities                
Acquisition of businesses, net of cash acquired   (9,370 )     (578 )     (8,792 )
Purchases of property and equipment, net of sale proceeds   (6,739 )     (14,639 )     7,900  
Net cash used in investing activities   (16,109 )     (15,217 )     (892 )
                 
Financing activities                
Proceeds from revolving line of credit   206,190       148,335       57,855  
Payments on revolving line of credit   (253,249 )     (170,012 )     (83,237 )
Proceeds from asset-backed financing   80,100       80,000       100  
Payments on asset-backed financing   (13,500 )     (20,000 )     6,500  
Proceeds from short-term borrowings and current portion of long-term debt   13,713       10,798       2,915  
Payments on short-term borrowings and current portion of long-term debt   (1,148 )     (848 )     (300 )
Payments of deferred financing costs         (8 )     8  
Payments of deferred and contingent acquisition consideration   (311 )     (265 )     (46 )
Proceeds from stock issued under share-based compensation plans   7,071       7,808       (737 )
Payments of cash dividends   (17,819 )     (15,011 )     (2,808 )
Purchases of treasury stock   (23,097 )     (2,592 )     (20,505 )
Net cash (used in) provided by financing activities   (2,050 )     38,205       (40,255 )
Effect of exchange rate changes on cash and cash equivalents   1,578       24       1,554  
Change in cash and cash equivalents   12,223       (21,137 )     33,360  
Cash and cash equivalents at beginning of period   16,358       29,940       (13,582 )
Cash and cash equivalents at end of period $ 28,581     $ 8,803     $ 19,778  


ADDENDUM

Base Business

The following table breaks out our consolidated results into the base business component and the excluded component (sales centers excluded from base business):

(Unaudited) Base Business   Excluded   Total
(in thousands) Three Months Ended
  Three Months Ended   Three Months Ended
  March 31,   March 31,   March 31,
    2019
      2018
      2019
      2018
      2019       2018  
Net sales $ 587,320
    $ 582,822     $ 10,136
    $ 3,078     $ 597,456
    $ 585,900  
                                               
Gross profit   171,706       165,334       2,925       739       174,631       166,073  
Gross margin   29.2 %     28.4 %     28.9 %     24.0 %     29.2 %     28.3 %
                                               
Operating expenses   132,548       131,250       3,697       1,282       136,245       132,532  
Expenses as a % of net sales   22.6 %     22.5 %     36.5 %     41.7 %     22.8 %     22.6 %
                                               
Operating income (loss)   39,158       34,084       (772 )     (543 )     38,386       33,541  
Operating margin   6.7 %     5.8 %     (7.6 )%     (17.6 )%     6.4 %     5.7 %

We have excluded the following acquisitions from base business for the periods identified:

Acquired   Acquisition
Date
  Net
Sales Centers
Acquired
  Periods
Excluded
W.W. Adcock, Inc. (1)   January 2019   4   January - March 2019
Turf & Garden, Inc. (1)   November 2018   4   January - March 2019
Tore Pty. Ltd. (Pool Power) (1)   January 2018   1   January - March 2019 and
January - March 2018
Chem Quip, Inc. (1)   December 2017   5   January - March 2019 and
January - March 2018
Intermark   December 2017   1   January - February 2019 and
January - February 2018

(1)  We acquired certain distribution assets of each of these companies.

When calculating our base business results, we exclude sales centers that are acquired, closed or opened in new markets for a period of 15 months. We also exclude consolidated sales centers when we do not expect to maintain the majority of the existing business and existing sales centers that are consolidated with acquired sales centers.

We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales. After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.

The table below summarizes the changes in our sales center count in the first three months of 2019.

December 31, 2018 364  
Acquired locations 4  
New locations 2  
Consolidated location (1 )
March 31, 2019 369  

Adjusted EBITDA

We define Adjusted EBITDA as net income or net loss plus interest and other non-operating expenses, income taxes, depreciation, amortization, share‑based compensation, goodwill and other non-cash impairments and equity earnings or loss in unconsolidated investments. Adjusted EBITDA is not a measure of cash flow or liquidity as determined by generally accepted accounting principles (GAAP). We have included Adjusted EBITDA as a supplemental disclosure because we believe that it is widely used by our investors, industry analysts and others as a useful supplemental liquidity measure in conjunction with cash flows provided by or used in operating activities to help investors understand our ability to provide cash flows to fund growth, service debt and pay dividends as well as compare our cash flow generating capacity from year to year.

We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, cash flows provided by or used in operating, investing and financing activities or other income statement or cash flow statement line items reported in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.

The table below presents a reconciliation of net income to Adjusted EBITDA.

(Unaudited) Three Months Ended
(in thousands) March 31,
      2019     2018
Net income $ 32,637     $ 31,339  
  Add:          
  Interest and other non-operating expenses (1)   6,616       3,527  
  Income tax benefit   (802 )     (1,279 )
  Share-based compensation   3,259       3,321  
  Equity earnings in unconsolidated investments   (65 )     (46 )
  Depreciation   6,649       6,299  
  Amortization (2)   267       276  
Adjusted EBITDA $ 48,561     $ 43,437  


(1)  Shown net of interest income and includes amortization of deferred financing costs as discussed below.
(2)  Excludes amortization of deferred financing costs of $108 and $194 for the three months ended March 31, 2019 and March 31, 2018, respectively.

The table below presents a reconciliation of Adjusted EBITDA to net cash provided by (used in) operating activities. Please see page 5 for our Condensed Consolidated Statements of Cash Flows.

(Unaudited)   Three Months Ended
(in thousands)   March 31,
      2019     2018
Adjusted EBITDA $ 48,561     $ 43,437  
  Add:          
  Interest and other non-operating expenses, net of interest income   (6,508 )     (3,333 )
  Income tax benefit   802       1,279  
  Other   512       681  
  Change in operating assets and liabilities   (14,563 )     (86,213 )
Net cash provided by (used in) operating activities $ 28,804     $ (44,149 )

 

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