Technology

Pool Corp. (POOL) Up 10.9% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Pool Corp. (POOL). Shares have added about 10.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Pool Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Pool Corp Q2 Earnings Beat Estimates, Increase Y/Y

Pool Corporation reported solid second-quarter 2020 results, wherein earnings and revenues not only surpassed the Zacks Consensus Estimate but also increased on a year-over-year basis. While the bottom line beat the consensus estimate for the fifth straight quarter, the top line surpassed the same for the fourth consecutive time.

Adjusted earnings of $3.87 per share in the quarter topped the Zacks Consensus Estimate of $3.09 and increased 20.2% from the year-ago quarter’s tally. Quarterly net revenues of $1,280.8 million surpassed the consensus mark of $1,147 million and increased 14.2% year over year.

Notably, the upside can be primarily attributed to solid performance by the base business segment and Excluded segment. Moreover, relaxations on stay-at-home restrictions coupled with increased demand among the pool construction and remodel companies added to the upside.

Segmental Performance

Pool Corp reports operations under two segments — The Base Business (constituting majority of the business) and the Excluded (sale centers excluded from the Base business).

Revenues at the Base Business segment increased 14.2% year over year to $1,276.6 million. Operating income increased 18.9% year over year to $205.4 million. Moreover, operating margin expanded 60 basis points (bps) from the year-ago quarter’s number to 16.1%.

The Excluded segment delivered net revenues of $4.3 million, up from $3.4 million registered in the prior-year quarter. The segment reported operating income of $0.4 million against the year-ago quarter’s loss of $0.3 million. The segment’s operating margin came in at 9.9% against a negative 9.5% in the prior-year quarter.

Operating Highlights & Expenses

Cost of sales in the second quarter increased 14.7% from the prior-year quarter’s figure. Gross profit, as a percentage of net sales, declined 30 basis points (bps) to 29.2% from a year ago primarily due to increased sales of lower margin, big-ticket items, such as in-ground and above-ground pools and pool equipment, in the second quarter from the year-ago period.

Selling and administrative expenses inched up 6% year over year to $167.6 million.

Although operating income increased 19% year over year to $205.9 million, operating margin declined 70 bps to 16.1% from the prior-year quarter’s level.

Nonetheless, net income totaled $157.6 million, up from $131.3 million recorded in the year-ago quarter.

Balance Sheet

As of Jun 30, 2020, Pool Corp’s cash and cash equivalents amounted to $44.2 million compared with $60.7 million as on Jun 30, 2019. Total net receivables, including pledged receivables, rose 9% and inventory levels increased 10% year over year. Its net long-term debt amounted to $429.2 million, down 35.8% from the prior-year quarter’s level. Goodwill increased to $193.8 million from $188.7 million reported in the prior-year quarter.

During second-quarter 2020, net cash provided by operating activities came in at $201.5 million compared with $68.6 million in the year-ago period.

For the six months ended Jun 30, 2020 the company paid out cash dividends worth $45.3 million compared with $39.8 million in the prior-year quarter.

2020 Guidance

For 2020, Pool Corp expects earnings per share in the range of $7.05-$7.45 compared with the prior guidance of $5.45-$6.05. The Zacks Consensus Estimate for 2020 is currently pegged at $5.97.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 11.77% due to these changes.

VGM Scores

At this time, Pool Corp. has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Pool Corp. has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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

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