Louisiana-based Pool Corp.’s (POOL) reported third-quarter earnings of 78 cents per share were in line with the Zacks Consensus Estimate but increased 14.7% from the year-ago quarter figure of 68 cents, driven primarily by higher year over year sales. The swimming pool and lifestyle product maker’s shares were up more than 7% in the trading session on Oct 16, as year-over-year rise in sales improved investors’ confidence.
Net sales in the reported quarter came in at $615.5 million and missed the Zacks Consensus Estimate of $624 million by 1.4%. However, sales rose 6% year over year due to increase in base business sales. Replacement and remodel activities continued to drive sales growth with sales increases in building materials.
Behind the Headline Numbers
Despite a 5.7% year-over-year increase in cost of sales, gross profit was up 8.4% to $176.2 million due to higher sales. Further, gross margin increased 50 basis points to 28.6%, mainly due to the company’s planned effort to increase margins.
Operating income during the quarter was $58.5 million, up 9.5% from the year-ago quarter, due to a rise in gross profit. However, selling and administrative expenses increased 7.9% year over year to $117.8 million due to higher base business expenses. These include higher performance-based incentive compensation expense, greater employee insurance expense, increased freight costs and continued increases in infrastructure investments such as additional personnel and expenses related to equipment and technology to support sales growth.
Guidance for 2014 Narrowed
For 2014, the company tightened its expectation for earnings per share to a range of $2.38–$2.43 from the prior guidance of $2.35–$2.45. This is because the company expects the fourth quarter to be affected by seasonality.
Our Take
Pool Corp. is well on its path to recovery. The company posted improved results in the quarter driven by the ongoing recovery in discretionary product sales. The revenue beat reflects improving product demand in the U.S. swimming pool construction. However, we are concerned about the slowdown in the housing market, which might lower sales in the upcoming quarter.
Pool currently has a Zacks Rank #3 (Hold). Better-ranked stock in the same sector is Malibu Boats, Inc. (MBUU), which sports a Zacks Rank #1 (Strong Buy). In the broader consumer discretionary sector, Speedway Motorsports Inc. (TRK) and Diamond Resorts International, Inc. (DRII), both carrying a Zacks Rank #2 (Buy), are also worth a look.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment