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 Pool Corporation Reports Record Second Quarter Results
   Thursday, July 18, 2019 7:00:00 AM ET

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 sales791,014  749,149  1,213,839  1,168,976 
Gross profit330,314  308,655  504,945  474,728 
Percent29.5% 29.2% 29.4% 28.9%
        
Selling and administrative expenses157,791  146,613  294,036  279,145 
Operating income172,523  162,042  210,909  195,583 
Percent15.4% 15.3% 12.3% 11.9%
        
Interest and other non-operating expenses, net6,424  5,991  13,040  9,518 
Income before income taxes and equity earnings166,099  156,051  197,869  186,065 
Provision for income taxes34,778  39,062  33,976  37,783 
Equity earnings in unconsolidated investments, net69  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:       
Basic39,827  40,453  39,654  40,413 
Diluted40,848  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, 2018364  
Acquired locations4  
New locations5  
Consolidated location(1) 
June 30, 2019372  

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) 

 

POOLCORPLogo.jpg

Source: Pool Corporation


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