Mixed 3Q at Pool; Guides Higher - Analyst Blog


Pool Corp. 's ( POOL ) third quarter 2012 adjusted earnings per share of 59 cents were ahead of the Zacks Consensus Estimate of 56 cents and 18% above the year-ago level.  One less selling day than the third quarter of 2011 led to a tough comparison in the quarter under review.

The year-over-year increase in earnings was mainly driven by modest top-line growth as well as reduced cost structure. Net sales in the reported quarter increased 5.0% year over year to $528.0 million but lagged the Zacks Consensus Estimate of $531.0 million.  

Inside the Headline Numbers

Overall Base business sales of Pool improved 3% year over year. Sales from swimming pool side business increased only 3% in the quarter, while sales from irrigation business were up 8%. Results were benefited by market share gains, offset somewhat by 1% decline by adverse currency translation.

Among the three largest markets of swimming pool side business, Florida performed relatively better while California and Texas were a little lower than the company average. In those markets, year-over-year comparison made a crucial difference to sales growth.

Gross profit grew 2% year over year to $151.5 million but gross margin fell 70 basis points (bps) to 28.7% due to cut-throat competition, tough year-over-year comparison owing to vendor price increases last year and an adverse customer mix. Operating margin fell 30 bps to 7.8%.


Cash and cash equivalents increased 40% year over year to $28.8 million. Net receivables climbed 9% from the prior-year period to $175.5 million.

The inventory level escalated 3% year over year to $349.3 million at the end of the third quarter. Total long-term debt was $214.3 million versus $268.7 million in the year-ago quarter.


After slashing the full-year earnings per share guidance in the last quarter, management raised it this time to the range of $1.80-$1.83 from $1.75-$1.82.

Our Take

Management still expects earnings per share to grow over 20% this year, which if achieved, will mark the third consecutive year of earnings growth. However, tough seasonality in the fourth quarter and faltering consumer confidence mainly in Europe, representing 6% of Pool's total sales are some causes of concern.

However, on a positive note, there are some commendable attributes in the stock like efficient cost containment efforts, a steady turnaround of the Green business, which was once struggling, and market share gains. The increase in full-year guidance also portrays the company's inherent strength.

Pool, which competes with the likes of Johnson Outdoors Inc. ( JOUT ) , holds a Zacks #1 Rank (short-term Strong Buy recommendation). We reiterate our long-term Neutral recommendation on the stock.

JOHNSON OUTDOOR (JOUT): Free Stock Analysis Report

POOL CORP (POOL): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: JOUT , POOL



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