Pool Corp. (POOL) reported second quarter 2011 earnings of $1.19, beating the Zacks Consensus Estimate of $1.15 per share as well as the year-ago quarter earnings of $1.05. The improvement was driven by solid top-line growth and margin expansion.
Net sales in the reported quarter jumped 9% year over year to $706.4 million, handily beating the Zacks Consensus Estimate of $685.0 million.
Inside The Headline Numbers
Overall Base business sales of Pool improved 8% year over year, including a favorable exchange rate impact of 1%. Moreover, market share gain along with increase in replacement and construction activities contributed to the strong upside in the quarter.
Blue business sales increased 8.4% in the quarter, while green business sales were up 4.4%. Texas emerged as the largest market for the company’s blue business, with a whopping 12.5% growth followed by Arizona (11.5%) and California (7.8%). Other markets, including the southeast and Florida also grew 8.1% and 4.4%, respectively.
Gross profit climbed 11% year over year to $211.4 million and gross margin spiked 50 basis points (bps) to 29.9%, attributable to Pool’s pricing discipline coupled with improvements in sales trends, purchase execution and mid-year vendor price increases. Operating income expanded 10% to $97.9 million while operating margin inched up 20 bps to 13.9% during the quarter.
Financials
Cash and cash equivalents rose 1% year over year to $37.2 million. Net receivables grew 11% from the prior-year period to $266.0 million attributable to higher sales in June 2011. The inventory level upped 18% year over year to $389.8 million at the end of the second quarter, reflecting stock piling in advance due to a price hike by vendors in mid 2011, inventory related to recent acquisitions and higher purchase levels in anticipation of sales growth. Total debt outstanding was $306.0 million versus $266.1 million in the year-ago quarter.
Outlook
For full-year 2011, management tightened its earnings guidance by raising the lower end of the range. The company now expects earnings per share in the range of $1.38–$1.45, up from $1.35–$1.45 on the back of strong second quarter results. Pool anticipates modest sales growth for the remainder of 2011.
Our Take
The company reported better-than-expected results, but we expect estimates to go down in the coming days as Pool generated 70% of its sales during the second quarter, leaving a smaller share for the third. Pool is expected to witness a sequential decline in revenue in the third quarter. The Zacks Consensus Estimates for 2011 and 2012 are pegged at $1.43 and $1.66, respectively.
Management realizes the opportunity to grow earnings per share over 20% per year for the next five years. We are also supportive of management’s view and believe that the company is experiencing a turnaround, even in the green business.
However, the macro economy is yet to show definitive signs of recovery, which might restrict replacement, renovation and new construction in the near term. Consequently, Pool holds a Zacks #3 Rank (short-term Hold recommendation). We also reiterate our long-term Neutral recommendation on the stock.
One of Pool’s primary competitor, Johnson Outdoors Inc. (JOUT), is expected to release its third quarter 2011 results on August 5, 2011.
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