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CST: 20/11/2019 15:40:26   

Pool Corporation Reports Record Second Quarter Results

125 Days ago

Highlights

  • Net sales growth of 6% for Q2 2019, with 4% growth in base business sales
  • Q2 2019 diluted EPS increase of 15% to $3.22 or an increase of 10% to $3.03, excluding tax benefits
  • Cash provided by operations improved $134.3 million from the first half of 2018
  • Narrows 2019 earnings guidance range to $6.09 - $6.34 per diluted share from $6.09 - $6.39 per diluted share

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

“We realized record sales and earnings in the quarter despite unprecedented levels of rainfall and cooler temperatures in many of our key markets.  Consumer demands and dealer backlog remain high and our team remains focused on execution throughout the remainder of the season,” said Peter D. Arvan, President and CEO.

Net sales increased 6% to a record $1.12 billion in the second quarter of 2019 compared to $1.06 billion in the second quarter of 2018, while base business sales grew 4%.  In the southeastern United States, favorable weather conditions and solid execution by our teams delivered strong sales growth in these markets.  This growth was offset by record rainfall and cooler temperatures in three of our largest markets, California, Texas and Arizona, particularly in the month of May, which was the second wettest May on record for the contiguous United States.  Sales were also negatively impacted approximately 1% compared to the second quarter of 2018 from unfavorable currency exchange rate fluctuations.  During the quarter, sales benefited from strong demand for discretionary products as evidenced by higher sales growth in construction materials and products used in the repair and replacement of in-ground pools.

Gross profit increased 7% to a record $330.3 million in the second quarter of 2019 from $308.7 million in the same period of 2018.  Base business gross profit improved 5% over the second quarter of 2018, including a negative currency exchange impact of 1%.  Gross margin increased 30 basis points to 29.5% in the second quarter of 2019 compared to 29.2% in the second quarter of 2018, reflecting benefits from strategic inventory purchases.

Selling and administrative expenses (operating expenses) increased 8% to $157.8 million in the second quarter of 2019 compared to the second quarter of 2018.  Base business operating expenses were up 5% over the comparable 2018 period, including a 1% currency benefit.  As a percentage of net sales, base business operating expenses increased to 13.9% in the second quarter of 2019 compared to 13.8% in the second quarter of 2018, reflecting disciplined expense controls in line with sales growth.

Operating income for the second quarter of 2019 increased to a record $172.5 million, up 6% compared to the same period in 2018.  Operating margin was 15.4% in the second quarter of 2019 compared to 15.3% in the second quarter of 2018, while base business operating margin improved 30 basis points from the prior year to 15.6% in the second quarter of 2019.

We recorded a $7.8 million, or $0.19 per diluted share, tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, in the quarter ended June 30, 2019 compared to a tax benefit of $1.5 million, or $0.04 per diluted share, realized in the same period of 2018.

Net income was $131.4 million in the second quarter of 2019 compared to $117.0 million in the second quarter of 2018.  Earnings per share increased 15% to a record $3.22 per diluted share in the three months ended June 30, 2019 compared to $2.80 per diluted share in the same period of 2018.  Excluding the impact from ASU 2016-09 in both periods, earnings per diluted share increased 10% to $3.03 in the second quarter of 2019 compared to $2.76 in the second quarter of 2018.

Net sales for the six months ended June 30, 2019 increased 5% to a record $1.72 billion from $1.64 billion in the six months ended June 30, 2018, with most of this growth coming from the 3% improvement in base business sales. In addition, sales were negatively impacted approximately 1% from unfavorable currency exchange rate fluctuations.  Gross margin increased 50 basis points to 29.4% compared to 28.9% in the same period last year.

Operating expenses increased 5% compared to the first half of 2018, with base business operating expenses up 3%, including a 1% currency benefit.  Operating income for the first six months of 2019 increased 8% to a record $210.9 million compared to $195.6 million in the same period last year.  Operating margin for the six months ended June 30, 2019 was 12.3% compared to 11.9% for the six months ended June 30, 2018, while our base business operating margin improved 50 basis points from the prior year to 12.5% for the six months ended June 30, 2019.

We recorded a $16.6 million, or $0.40 per diluted share, tax benefit from ASU 2016-09 in the six months ended June 30, 2019 compared to a $10.6 million, or $0.25 per diluted share, tax benefit in the same period of 2018.

Net income for the six months ended June 30, 2019 was a record $164.0 million compared to $148.4 million for the six months ended June 30, 2018.  Earnings per share for the first six months of 2019 increased 13% to $4.02 per diluted share versus $3.55 in the first six months of 2018.

On the balance sheet at June 30, 2019, total net receivables, including pledged receivables, increased 3%.  Inventory levels grew 14% compared to June 30, 2018, reflecting strategic inventory purchases, cost inflation on purchases and inventory from recently acquired businesses of $13.0 million.  Accounts payable increased 14%, which is consistent with our inventory growth.  Total debt outstanding was $692.3 million at June 30, 2019, a $35.2 million increase from total debt at June 30, 2018.

Cash provided by operations was $97.4 million in the first six months of 2019 compared to $36.8 million used in operations in the first six months of 2018, an improvement of $134.3 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 $231.6 million and $215.5 million for the six months ended June 30, 2019 and June 30, 2018, respectively.  Interest expense increased compared to last year primarily due to higher debt levels and higher interest rates.

“Our strong customer base and knowledgeable team members remain a key component of our achievements and greatly contribute to our continued success in a challenging weather year.  Based on our results to date and expectations for the remainder of the year, we are narrowing our annual earnings guidance range from $6.09 to $6.39 per diluted share to $6.09 to $6.34 per diluted share,” said Arvan.

POOLCORP is the world’s largest wholesale distributor of swimming pool and related backyard products.  POOLCORP operates 372 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   Six Months Ended
  June 30,   June 30,
  2019   2018   2019   2018
Net sales $ 1,121,328     $ 1,057,804     $ 1,718,784     $ 1,643,704  
Cost of sales 791,014     749,149     1,213,839     1,168,976  
Gross profit 330,314     308,655     504,945     474,728  
Percent 29.5 %   29.2 %   29.4 %   28.9 %
               
Selling and administrative expenses 157,791     146,613     294,036     279,145  
Operating income 172,523     162,042     210,909     195,583  
Percent 15.4 %   15.3 %   12.3 %   11.9 %
               
Interest and other non-operating expenses, net 6,424     5,991     13,040     9,518  
Income before income taxes and equity earnings 166,099     156,051     197,869     186,065  
Provision for income taxes 34,778     39,062     33,976     37,783  
Equity earnings in unconsolidated investments, net 69     60     134     106  
Net income $ 131,390     $ 117,049     $ 164,027     $ 148,388  
               
Earnings per share:              
Basic $ 3.30     $ 2.89     $ 4.14     $ 3.67  
Diluted $ 3.22     $ 2.80     $ 4.02     $ 3.55  
Weighted average shares outstanding:              
Basic 39,827     40,453     39,654     40,413  
Diluted 40,848     41,814     40,773     41,840  
               
Cash dividends declared per common share $ 0.55     $ 0.45     $ 1.00     $ 0.82  


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

      June 30,     June 30,     Change  
      2019     2018     $   %  
                         
Assets                      
Current assets:                      
  Cash and cash equivalents $ 60,694     $ 42,167     $ 18,527     44   %
  Receivables, net (1)   127,260       135,104       (7,844 )   (6 )  
  Receivables pledged under receivables facility   289,866       269,311       20,555     8    
  Product inventories, net (2)   694,447       606,583       87,864     14    
  Prepaid expenses and other current assets (5)   10,922       17,169       (6,247 )   (36 )  
Total current assets   1,183,189       1,070,334       112,855     11    
                         
Property and equipment, net   113,360       113,048       312        
Goodwill   188,665       189,066       (401 )      
Other intangible assets, net   11,502       12,608       (1,106 )   (9 )  
Equity interest investments   1,213       1,130       83     7    
Operating lease assets (3),(4),(5)   173,854             173,854     100    
Other assets   18,799       18,095       704     4    
Total assets $ 1,690,582     $ 1,404,281     $ 286,301     20   %
                         
Liabilities and stockholders’ equity                      
Current liabilities:                      
  Accounts payable (4) $ 342,335     $ 300,232     $ 42,103     14   %
  Accrued expenses and other current liabilities   81,626       83,271       (1,645 )   (2 )  
  Short-term borrowings and current portion of long-term debt   23,974       21,462       2,512     12    
  Current operating lease liabilities (3)   55,692             55,692     100    
Total current liabilities   503,627       404,965       98,662     24    
                         
Deferred income taxes   28,852       24,729       4,123     17    
Long-term debt, net   668,363       635,658       32,705     5    
Other long-term liabilities   27,191       25,128       2,063     8    
Non-current operating lease liabilities (3)   119,380             119,380     100    
Total liabilities   1,347,413       1,090,480       256,933     24    
Total stockholders’ equity   343,169       313,801       29,368     9    
Total liabilities and stockholders’ equity $ 1,690,582     $ 1,404,281     $ 286,301     20   %

(1) The allowance for doubtful accounts was $6.4 million at June 30, 2019 and $4.1 million at June 30, 2018.
(2) The inventory reserve was $9.5 million at June 30, 2019 and $8.4 million at June 30, 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 $5.0 million, reported in Accounts payable under previous accounting guidance, offsets our Operating lease assets.
(5) As of June 30, 2019, we presented pre-paid rent of $4.8 million in Operating lease assets as required under the new guidance (presented in Prepaid expenses and other current assets as of June 30, 2018).


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

    Six Months Ended        
    June 30,        
    2019     2018     Change  
Operating activities                  
Net income $ 164,027     $ 148,388     $ 15,639    
Adjustments to reconcile net income to net cash provided by (used in) operating activities:                  
  Depreciation   13,558       12,888       670    
  Amortization   713       938       (225 )  
  Share-based compensation   6,594       6,481       113    
  Equity earnings in unconsolidated investments, net   (134 )     (106 )     (28 )  
  Other   2,558       1,861       697    
Changes in operating assets and liabilities, net of effects of acquisitions:                  
  Receivables   (206,271 )     (210,327 )     4,056    
  Product inventories   (5,380 )     (76,286 )     70,906    
  Prepaid expenses and other assets   4,831       2,100       2,731    
  Accounts payable   97,232       55,964       41,268    
  Accrued expenses and other current liabilities   19,713       21,290       (1,577 )  
Net cash provided by (used in) operating activities   97,441       (36,809 )     134,250    
                   
Investing activities                  
Acquisition of businesses, net of cash acquired   (9,345 )     (578 )     (8,767 )  
Purchases of property and equipment, net of sale proceeds   (19,193 )     (24,620 )     5,427    
Net cash used in investing activities   (28,538 )     (25,198 )     (3,340 )  
                   
Financing activities                  
Proceeds from revolving line of credit   545,834       554,536       (8,702 )  
Payments on revolving line of credit   (657,180 )     (545,574 )     (111,606 )  
Proceeds from asset-backed financing   176,100       177,500       (1,400 )  
Payments on asset-backed financing   (54,200 )     (60,000 )     5,800    
Proceeds from short-term borrowings and current portion of long-term debt   22,687       13,957       8,730    
Payments on short-term borrowings and current portion of long-term debt   (7,881 )     (3,330 )     (4,551 )  
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   12,603       9,383       3,220    
Payments of cash dividends   (39,753 )     (33,194 )     (6,559 )  
Purchases of treasury stock   (23,097 )     (38,876 )     15,779    
Net cash (used in) provided by financing activities   (25,198 )     74,129       (99,327 )  
Effect of exchange rate changes on cash and cash equivalents   631       105       526    
Change in cash and cash equivalents   44,336       12,227       32,109    
Cash and cash equivalents at beginning of period   16,358       29,940       (13,582 )  
Cash and cash equivalents at end of period $ 60,694     $ 42,167     $ 18,527    


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
    June 30,   June 30,   June 30,
    2019   2018   2019   2018   2019   2018
Net sales   $ 1,103,419     $ 1,057,273     $ 17,909     $ 531     $ 1,121,328     $ 1,057,804  
                         
Gross profit   325,438     308,551     4,876     104     330,314     308,655  
Gross margin   29.5 %   29.2 %   27.2 %   19.6 %   29.5 %   29.2 %
                         
Operating expenses   153,846     146,393     3,945     220     157,791     146,613  
Expenses as a % of net sales   13.9 %   13.8 %   22.0 %   41.4 %   14.1 %   13.9 %
                         
Operating income (loss)   171,592     162,158     931     (116 )   172,523     162,042  
Operating margin   15.6 %   15.3 %   5.2 %   (21.8 )%   15.4 %   15.3 %


(Unaudited)   Base Business   Excluded   Total
(in thousands)   Six Months Ended   Six Months Ended   Six Months Ended
    June 30,   June 30,   June 30,
    2019   2018   2019   2018   2019   2018
Net sales   $ 1,690,739     $ 1,640,095     $ 28,045     $ 3,609     $ 1,718,784     $ 1,643,704  
                         
Gross profit   497,144     473,885     7,801     843     504,945     474,728  
Gross margin   29.4 %   28.9 %   27.8 %   23.4 %   29.4 %   28.9 %
                         
Operating expenses   286,394     277,643     7,642     1,502     294,036     279,145  
Expenses as a % of net sales   16.9 %   16.9 %   27.2 %   41.6 %   17.1 %   17.0 %
                         
Operating income (loss)   210,750     196,242     159     (659 )   210,909     195,583  
Operating margin   12.5 %   12.0 %   0.6 %   (18.3 )%   12.3 %   11.9 %

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 - June 2019
Turf & Garden, Inc. (1)   November 2018   4   January - June 2019
Tore Pty. Ltd. (Pool Power) (1)   January 2018   1   January - April 2019 and
January - April 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 six months of 2019.

December 31, 2018 364    
Acquired locations 4    
New locations 5    
Consolidated location (1 )  
June 30, 2019 372    

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     Six Months Ended  
(in thousands)   June 30,     June 30,  
      2019     2018     2019     2018  
Net income $ 131,390     $ 117,049     $ 164,027     $ 148,388    
  Add:                        
  Interest and other non-operating expenses (1)   6,424       5,991       13,040       9,518    
  Provision for income taxes   34,778       39,062       33,976       37,783    
  Share-based compensation   3,335       3,160       6,594       6,481    
  Equity earnings in unconsolidated investments   (69 )     (60 )     (134 )     (106 )  
  Depreciation   6,909       6,589       13,558       12,888    
  Amortization (2)   230       275       497       551    
Adjusted EBITDA $ 182,997     $ 172,066     $ 231,558     $ 215,503    

(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 $193 for the three months ended June 30, 2019 and June 30, 2018, respectively, and $216 and $387 for the six months ended June 30, 2019 and June 30, 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     Six Months Ended  
(in thousands)   June 30,     June 30,  
      2019     2018     2019     2018  
Adjusted EBITDA $ 182,997     $ 172,066     $ 231,558     $ 215,503    
  Add:                        
  Interest and other non-operating expenses, net of interest income   (6,316 )     (5,798 )     (12,824 )     (9,131 )  
  Provision for income taxes   (34,778 )     (39,062 )     (33,976 )     (37,783 )  
  Other   2,046       1,180       2,558       1,861    
  Change in operating assets and liabilities   (75,312 )     (121,046 )     (89,875 )     (207,259 )  
Net cash provided by (used in) operating activities $ 68,637     $ 7,340     $ 97,441     $ (36,809 )  

 

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