) second quarter 2012 adjusted earnings per share of $1.34 were a
penny short of the Zacks Consensus Estimate but 13% above the
year-ago level. Earnings per share bore an unfavorable impact of
foreign currency translation by a penny.
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 7.0% year over year to $757.2 million
but lagged the Zacks Consensus Estimate of $768.0 million.
Some demand was carried forward mostly to first quarter and early
second quarter as the season reached its peak much before than the
usual time because of milder winter. However, after outshining in
first-quarter and early second-quarter, sales began to loose
momentum from June.
Inside the Headline Numbers
Overall Base business sales of Pool improved 5% year over year even
after considering an adverse impact of 1% from currency
translation. Blue business sales increased only 4.8% in the
quarter, while Green business sales were up 10.7%. Swimming pool
side business in the three largest markets namely California,
Florida and Texas were strong, assisting overall sales growth in
the second quarter. In those markets, pool maintenance and repair
were crucial contributors to sales.
Gross profit grew 5% year over year to $222.4 million but gross
margin fell 50 basis points (bps) to 29.4% due to cutthroat
competition, tough year-over-year comparison owing to vendor price
increases last year and an adverse customer mix. Operating expenses
as a percentage of sales fell 110 bps to 14.9%.
Cash and cash equivalents increased 35% year over year to $50.3
million. Net receivables nudged up 2% from the prior-year period to
The inventory level upped 3% year over year to $402.3 million at
the end of the second quarter. Total long-term debt was $309.8
million versus $206.0 million in the year-ago quarter.
Pool bought back 1.2 million shares for $42.1 million in the first
half of 2012.
After increasing the full-year earnings per share guidance in the
last quarter, management slashed it this time to the range of
$1.75-$1.82 from $1.75-$1.85. An early peak season in 2012 leaves
the second half of the year in uncertainty. Moreover, slowdown in
the global economic environment that led to a possible pullback in
consumers' discretionary spending was another reason for lowering
Pool's management still hopes to grow earnings per share over 20%
this year which, if achieved, will be third year in a row. However,
management said tough seasonality and faltering consumer confidence
could prove detrimental for Pool's second half. We are also
supportive of management's view.
However, on a positive note, there are some commendable attributes
in the stock like efficient cost containment effort, a steady
turnaround of the Green business, which was once a struggling side,
and market share gains.
Pool, which competes with the likes of
Johnson Outdoors Inc.
Golfsmith International Holdings Inc.
), holds a Zacks #2 Rank (short-term Buy recommendation). We
reiterate our long-term Neutral recommendation on the stock.
GOLFSMITH INTL (GOLF): Free Stock Analysis
JOHNSON OUTDOOR (JOUT): Free Stock Analysis
POOL CORP (POOL): Free Stock Analysis Report
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