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Pool Corporation Reports Record Third Quarter Results

Highlights

  • Net sales growth of 11% for Q3 2019, with 9% growth in base business sales
  • Q3 2019 diluted EPS increase of 17% to $1.95 or an increase of 16% to $1.84, excluding tax benefits
  • Cash provided by operations was $243.3 million, an improvement of $192.0 million from the first nine months of 2018
  • Increases and narrows 2019 earnings guidance range to $6.20 - $6.40 per diluted share from $6.09 - $6.34 per diluted share

COVINGTON, La., Oct. 17, 2019 (GLOBE NEWSWIRE) -- Pool Corporation (NASDAQ/GSM:POOL) today reported record results for the third quarter of 2019.

"Demand for swimming pool and outdoor living products remains healthy.  Favorable weather conditions and outstanding execution by our teams allowed us to deliver solid results for the quarter.  With a continued focus on operational excellence, we are in position for a strong finish to the year," said Peter D. Arvan, President and CEO. 

Net sales increased 11% to a record $898.5 million in the third quarter of 2019 compared to $811.3 million in the third quarter of 2018, while base business sales grew 9%.  During the quarter, sales continued to benefit from strong demand for discretionary products as evidenced by higher sales growth in construction materials and products used in the repair and replacement of in-ground pools.  Additionally, sales were favorably impacted approximately 1% from an extra selling day in the third quarter of 2019 compared to the third quarter of 2018.

Gross profit increased 10% to a record $257.9 million in the third quarter of 2019 from $235.0 million in the same period of 2018.  Base business gross profit improved 8% over the third quarter of 2018.  Gross margin decreased 30 basis points to 28.7% in the third quarter of 2019 compared to 29.0% in the third quarter of 2018.  Gross margins in the third quarter of 2018 reflected benefits from strategic inventory purchases ahead of vendor price increases resulting in a comparative decline in the third quarter of 2019.   

Selling and administrative expenses (operating expenses) increased 8% to $153.4 million in the third quarter of 2019 compared to the third quarter of 2018, a portion of which reflects expenses from our most recent acquisitions.  Base business operating expenses were up 5% over the comparable 2018 period, reflecting increases in variable labor and freight costs.  As a percentage of net sales, base business operating expenses decreased to 16.9% in the third quarter of 2019 compared to 17.6% in the third quarter of 2018.

Operating income for the third quarter of 2019 increased to a record $104.5 million, up 13% compared to the same period in 2018.  Operating margin was 11.6% in the third quarter of 2019 compared to 11.4% in the third quarter of 2018, while base business operating margin improved 40 basis points from the prior year to 11.8% in the third quarter of 2019.

We recorded a $4.5 million, or $0.11 per diluted share, tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, in the quarter ended September 30, 2019 compared to a tax benefit of $3.3 million, or $0.08 per diluted share, realized in the same period of 2018.

Net income was $79.5 million in the third quarter of 2019 compared to $69.3 million in the third quarter of 2018.  Earnings per share increased 17% to a record $1.95 per diluted share in the three months ended September 30, 2019 compared to $1.66 per diluted share in the same period of 2018.  Excluding the impact from ASU 2016-09 in both periods, earnings per diluted share increased 16% to $1.84 in the third quarter of 2019 compared to $1.58 in the third quarter of 2018.

Net sales for the nine months ended September 30, 2019 increased 7% to a record $2.62 billion from $2.46 billion in the nine months ended September 30, 2018, with most of this growth coming from a 5% improvement in base business sales.  In addition, sales were negatively impacted approximately 1% from unfavorable currency exchange rate fluctuations.  Gross margin increased 20 basis points to 29.1% compared to 28.9% in the same period last year.

Operating expenses for the nine months ended September 30, 2019 increased 6% compared to the first nine months of 2018, with base business operating expenses up 4%, including a 1% currency benefit.  Operating income for the first nine months of 2019 increased 10% to a record $315.4 million compared to $287.9 million in the same period last year.  Operating margin for the nine months ended September 30, 2019 was 12.1% compared to 11.7% for the nine months ended September 30, 2018, while our base business operating margin improved 40 basis points from the prior year to 12.2% for the nine months ended September 30, 2019.

We recorded a $21.1 million, or $0.52 per diluted share, tax benefit from ASU 2016-09 in the nine months ended September 30, 2019 compared to a $13.9 million, or $0.33 per diluted share, tax benefit in the same period of 2018.

Net income for the nine months ended September 30, 2019 was a record $243.6 million compared to $217.6 million for the nine months ended September 30, 2018.  Earnings per share for the first nine months of 2019 increased 15% to $5.97 per diluted share versus $5.20 in the first nine months of 2018.

On the balance sheet at September 30, 2019, total net receivables, including pledged receivables, increased 7%.  Inventory levels grew 1% compared to September 30, 2018, reflecting the normalization of inventory levels following prior period inventory purchases ahead of vendor price increases.  Total debt outstanding was $547.6 million at September 30, 2019, a $33.1 million decrease from total debt at September 30, 2018.

Cash provided by operations was $243.3 million in the first nine months of 2019 compared to $51.3 million in the first nine months of 2018, an improvement of $192.0 million.  The strategic inventory purchases that we made in the latter half of 2018 negatively impacted our September 30, 2018 cash flows due to timing differences that reversed in the first half of 2019.  Adjusted EBITDA (as defined in the addendum to this release) was $347.1 million and $318.0 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.  Interest expense increased compared to last year primarily due to higher average debt levels and higher average interest rates.

"Through the remainder of 2019, we will remain focused on creating value for our customers, exceptional returns for our shareholders and great opportunities for our employees.  Based on our results to date and expectations for the remainder of the year, we are increasing and narrowing our annual earnings guidance range from $6.09 to $6.34 per diluted share to $6.20 to $6.40 per diluted share," said Arvan.

POOLCORP is the world's largest wholesale distributor of swimming pool and related backyard products.  POOLCORP operates 372 sales centers in North America, Europe, South America and Australia, through which it distributes more than 180,000 national brand and private label products to roughly 120,000 wholesale customers.  For more information, please visit www.poolcorp.com.

This news release includes "forward-looking" statements that involve risks and uncertainties that are generally identifiable through the use of words such as "believe," "expect," "intend," "plan," "estimate," "project," "should" and similar expressions and include projections of earnings.  The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements speak only as of the date of this release, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur.  Actual results may differ materially due to a variety of factors, including the sensitivity of our business to weather conditions, changes in the economy and the housing market, our ability to maintain favorable relationships with suppliers and manufacturers, competition from other leisure product alternatives and mass merchants, excess tax benefits or deficiencies recognized under ASU 2016-09 and other risks detailed in POOLCORP's 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) as updated by POOLCORP's subsequent filings with the SEC.

CONTACT:
Curtis J. Scheel
Director of Investor Relations
985.801.5341
curtis.scheel@poolcorp.com


POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
Net sales$898,500 $811,311 $2,617,283 $2,455,015
Cost of sales640,569 576,308 1,854,408 1,745,283
Gross profit257,931 235,003 762,875 709,732
Percent28.7 % 29.0 % 29.1 % 28.9 %
        
Selling and administrative expenses153,391 142,666 447,427 421,812
Operating income104,540 92,337 315,448 287,920
Percent11.6 % 11.4 % 12.1 % 11.7 %
        
Interest and other non-operating expenses, net5,498 4,931 18,538 14,449
Income before income taxes and equity earnings99,042 87,406 296,910 273,471
Provision for income taxes19,593 18,206 53,569 55,989
Equity earnings in unconsolidated investments, net76 61 210 167
Net income$79,525 $69,261 $243,551 $217,649
        
Earnings per share:       
Basic$1.99 $1.71 $6.13 $5.39
Diluted$1.95 $1.66 $5.97 $5.20
Weighted average shares outstanding:       
Basic39,933 40,422 39,750 40,416
Diluted40,865 41,797 40,811 41,831
        
Cash dividends declared per common share$0.55 $0.45 $1.55 $1.27


POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)

   September 30,  September 30,  Change 
   2019  2018  $ % 
             
Assets           
Current assets:           
 Cash and cash equivalents$36,693 $35,693 $1,000  3 %
 Receivables, net (1) 95,971  90,775  5,196  6  
 Receivables pledged under receivables facility 211,827  196,998  14,829  8  
 Product inventories, net (2) 616,217  609,983  6,234  1  
 Prepaid expenses and other current assets (5) 12,384  19,457  (7,073) (36) 
Total current assets 973,092  952,906  20,186  2  
             
Property and equipment, net 112,816  109,942  2,874  3  
Goodwill 188,133  189,029  (896) -  
Other intangible assets, net 11,235  12,305  (1,070) (9) 
Equity interest investments 1,237  1,163  74  6  
Operating lease assets (3),(4),(5) 175,878  -  175,878  100  
Other assets 19,017  18,413  604  3  
Total assets$1,481,408 $1,283,758 $197,650  15 %
             
Liabilities and stockholders' equity           
Current liabilities:           
 Accounts payable (4)$214,309 $204,706 $9,603  5 %
 Accrued expenses and other current liabilities 81,459  75,639  5,820  8  
 Short-term borrowings and current portion of long-term debt 11,840  9,343  2,497  27  
 Current operating lease liabilities (3) 56,025  -  56,025  100  
Total current liabilities 363,633  289,688  73,945  26  
             
Deferred income taxes 27,951  24,802  3,149  13  
Long-term debt, net 535,720  571,360  (35,640) (6) 
Other long-term liabilities 26,737  25,170  1,567  6  
Non-current operating lease liabilities (3) 121,397  -  121,397  100  
Total liabilities 1,075,438  911,020  164,418  18  
Total stockholders' equity 405,970  372,738  33,232  9  
Total liabilities and stockholders' equity$1,481,408 $1,283,758 $197,650  15 %
  1. The allowance for doubtful accounts was $6.2 million at September 30, 2019 and $5.4 million at September 30, 2018.
  2. The inventory reserve was $9.9 million at September 30, 2019 and $8.8 million at September 30, 2018.
  3. We adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019.  Upon adoption, we recorded operating lease assets and operating lease liabilities based on the present value of future lease obligations.  We applied the practical expedient available in this guidance, which does not require the restatement of prior year balances.
  4. Due to ASU 2016-02, our straight-line rent liability of $5.0 million, reported in Accounts payable under previous accounting guidance, offsets our Operating lease assets.
  5. As of September 30, 2019, we presented pre-paid rent of $4.8 million in Operating lease assets as required under the new guidance (presented in Prepaid expenses and other current assets as of September 30, 2018).


POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

  Nine Months Ended    
  September 30,    
  2019   2018   Change 
Operating activities         
Net income$243,551  $217,649  $25,902  
Adjustments to reconcile net income to net cash provided by operating activities:         
 Depreciation 20,648   19,499   1,149  
 Amortization 1,049   1,408   (359) 
 Share-based compensation 10,243   9,793   450  
 Equity earnings in unconsolidated investments, net (210)  (167)  (43) 
 Other 5,334   3,584   1,750  
Changes in operating assets and liabilities, net of effects of acquisitions:         
 Receivables (98,538)  (93,911)  (4,627) 
 Product inventories 68,827   (80,142)  148,969  
 Prepaid expenses and other assets 1,231   143   1,088  
 Accounts payable (29,782)  (40,143)  10,361  
 Accrued expenses and other current liabilities 20,900   13,547   7,353  
Net cash provided by operating activities 243,253   51,260   191,993  
          
Investing activities         
Acquisition of businesses, net of cash acquired (8,913)  (578)  (8,335) 
Purchases of property and equipment, net of sale proceeds (26,926)  (27,976)  1,050  
Net cash used in investing activities (35,839)  (28,554)  (7,285) 
          
Financing activities         
Proceeds from revolving line of credit 836,534   820,967   15,567  
Payments on revolving line of credit (1,011,430)  (813,996)  (197,434) 
Proceeds from asset-backed financing 189,000   193,400   (4,400) 
Payments on asset-backed financing (136,300)  (138,400)  2,100  
Proceeds from short-term borrowings and current portion of long-term debt 27,633   16,118   11,515  
Payments on short-term borrowings and current portion of long-term debt (24,962)  (17,610)  (7,352) 
Payments of deferred financing costs -   (8)  8  
Payments of deferred and contingent acquisition consideration (311)  (265)  (46) 
Proceeds from stock issued under share-based compensation plans 17,042   12,732   4,310  
Payments of cash dividends (61,752)  (51,371)  (10,381) 
Purchases of treasury stock (23,188)  (38,906)  15,718  
Net cash used in financing activities (187,734)  (17,339)  (170,395) 
Effect of exchange rate changes on cash and cash equivalents 655   386   269  
Change in cash and cash equivalents 20,335   5,753   14,582  
Cash and cash equivalents at beginning of period 16,358   29,940   (13,582) 
Cash and cash equivalents at end of period$36,693  $35,693  $1,000  


ADDENDUM

Base Business

The following table breaks out our consolidated results into the base business component and the excluded component (sales centers excluded from base business):

(Unaudited) Base Business Excluded Total
(in thousands) Three Months Ended Three Months Ended Three Months Ended
  September 30, September 30, September 30,
  2019 2018 2019 2018 2019 2018
Net sales $886,690 $811,006 $11,810 $305 $898,500 $811,311
             
Gross profit 254,779 234,943 3,152 60 257,931 235,003
Gross margin 28.7 % 29.0 % 26.7 % 19.7 % 28.7 % 29.0 %
             
Operating expenses 150,054 142,543 3,337 123 153,391 142,666
Expenses as a % of net sales 16.9 % 17.6 % 28.3 % 40.3 % 17.1 % 17.6 %
             
Operating income (loss) 104,725 92,400 (185) (63) 104,540 92,337
Operating margin 11.8 % 11.4 % (1.6% (20.7) % 11.6 % 11.4 %


(Unaudited) Base Business Excluded Total
(in thousands) Nine Months Ended Nine Months Ended Nine Months Ended
  September 30, September 30, September 30,
  2019 2018 2019 2018 2019 2018
Net sales $2,577,429 $2,451,101 $39,854 $3,914 $2,617,283 $2,455,015
             
Gross profit 751,933 708,828 10,942 904 762,875 709,732
Gross margin 29.2 % 28.9 % 27.5 % 23.1 % 29.1 % 28.9 %
             
Operating expenses 436,461 420,187 10,966 1,625 447,427 421,812
Expenses as a % of net sales 16.9 % 17.1 % 27.5 % 41.5 % 17.1 % 17.2 %
             
Operating income (loss) 315,472 288,641 (24) (721) 315,448 287,920
Operating margin 12.2 % 11.8 % (0.1) % (18.4) % 12.1 % 11.7 %

We have excluded the following acquisitions from base business for the periods identified:

 

Acquired
  

Acquisition
Date
 Net
Sales Centers
Acquired
  

Periods
Excluded
W.W. Adcock, Inc. (1) January 2019 4 January - September 2019
Turf & Garden, Inc. (1) November 2018 4 January - September 2019
Tore Pty. Ltd. (Pool Power) (1) January 2018 1 January - April 2019 and
January - April 2018
Chem Quip, Inc. (1) December 2017 5 January - March 2019 and January - March 2018
Intermark December 2017 1 January - February 2019 and January - February 2018

1.       We acquired certain distribution assets of each of these companies.

When calculating our base business results, we exclude sales centers that are acquired, closed or opened in new markets for a period of 15 months.  We also exclude consolidated sales centers when we do not expect to maintain the majority of the existing business and existing sales centers that are consolidated with acquired sales centers.

We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales.  After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.

The table below summarizes the changes in our sales center count in the first nine months of 2019.

                                           December 31, 2018364                                        
 Acquired locations4  
 New locations7  
 Closed/consolidated locations(3) 
 September 30, 2019372  

Adjusted EBITDA

We define Adjusted EBITDA as net income or net loss plus interest and other non-operating expenses, income taxes, depreciation, amortization, share-based compensation, goodwill and other non-cash impairments and equity earnings or loss in unconsolidated investments.  Adjusted EBITDA is not a measure of cash flow or liquidity as determined by generally accepted accounting principles (GAAP).  We have included Adjusted EBITDA as a supplemental disclosure because we believe that it is widely used by our investors, industry analysts and others as a useful supplemental liquidity measure in conjunction with cash flows provided by or used in operating activities to help investors understand our ability to provide cash flows to fund growth, service debt and pay dividends as well as compare our cash flow generating capacity from year to year.

We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, cash flows provided by or used in operating, investing and financing activities or other income statement or cash flow statement line items reported in accordance with GAAP.  Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.

The table below presents a reconciliation of net income to Adjusted EBITDA. 

(Unaudited) Three Months Ended  Nine Months Ended 
(in thousands) September 30,  September 30, 
   2019   2018   2019   2018  
Net income$79,525  $69,261  $243,551  $217,649  
 Add:            
 Interest and other non-operating expenses (1) 5,498   4,931   18,538   14,449  
 Provision for income taxes 19,593   18,206   53,569   55,989  
 Share-based compensation 3,649   3,312   10,243   9,793  
 Equity earnings in unconsolidated investments (76)  (61)  (210)  (167) 
 Depreciation 7,090   6,611   20,648   19,499  
 Amortization (2) 229   276   726   827  
Adjusted EBITDA$115,508  $102,536  $347,065  $318,039  
  1. Shown net of interest income and includes amortization of deferred financing costs as discussed below. 
  2. Excludes amortization of deferred financing costs of $108 and $194 for the three months ended September 30, 2019 and September 30, 2018, respectively, and $323 and $581 for the nine months ended September 30, 2019 and September 30, 2018, respectively.

The table below presents a reconciliation of Adjusted EBITDA to net cash provided by operating activities.  Please see page 6 for our Condensed Consolidated Statements of Cash Flows.

(Unaudited) Three Months Ended  Nine Months Ended 
(in thousands) September 30,  September 30, 
   2019   2018   2019   2018  
Adjusted EBITDA$115,508  $102,536  $347,065  $318,039  
 Add:            
 Interest and other non-operating expenses, net of interest income (5,390)  (4,737)  (18,215)  (13,868) 
 Provision for income taxes (19,593)  (18,206)  (53,569)  (55,989) 
 Other 2,776   1,723   5,334   3,584  
 Change in operating assets and liabilities 52,511   6,753   (37,362)  (200,506) 
Net cash provided by operating activities$145,812  $88,069  $243,253  $51,260  

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Oct 17, 2019
Disclaimer:

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995


Matters discussed in this website contain forward-looking information that involves risks and uncertainties. Forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of earnings and other financial performance measures, statements of management's expectations regarding plans and objectives, and industry, general economic and other financial forecasts of trends and other matters. You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as "anticipate", "estimate", "expect", "believe," "will likely result," "outlook," "project," "should" and other words and expressions of similar meaning. No assurance can be given that the results in any forward-looking statements will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. For these statements we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act. Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward-looking statements include the following:
  • The demand for our swimming pool, irrigation and related outdoor lifestyle products may be adversely affected by unfavorable economic conditions.
  • We are susceptible to adverse weather conditions.
  • Our distribution business is highly dependent on our ability to maintain favorable relationships with suppliers.
  • We face intense competition both from within our industry and from other leisure product alternatives.
  • More aggressive competition by store- and internet-based mass merchants and large pool or irrigation supply retailers could adversely affect our sales.
  • We depend on our ability to attract, develop and retain highly qualified personnel.
  • Past growth may not be indicative of future growth, and while we contemplate continued growth through internal expansion and acquisitions, no assurance can be made as to our ability to:
    • penetrate new markets;
    • generate sufficient cash flows to support expansion plans and general operating activities;
    • obtain financing;
    • maintain favorable supplier arrangements and relationships; and
    • identify and divest assets which do not continue to create value consistent with our objectives.
  • Our business is highly seasonal.
  • The nature of our business subjects us to compliance with employment, environmental, health, transportation, safety, and other governmental regulations.
  • We store chemicals, fertilizers and other combustible materials that involve fire, safety and casualty risks.
  • We conduct business internationally, which exposes us to additional risks
  • Changes in tax laws and accounting standards related to tax matters have caused, and may in the future cause, fluctuations in our effective tax rate.
  • We depend on a global network of suppliers to source our products. Product quality or safety concerns could negatively impact our sales and expose us to legal claims.
  • We rely on information technology systems to support our business operations. Any disturbance or breach of our technological infrastructure could adversely affect our financial condition and results of operations. Additionally, failure to maintain the security of confidential information could damage our reputation and expose us to litigation.
  • A terrorist attack or the threat of a terrorist attack could have a material adverse effect on our business.
The foregoing factors are not exhaustive and new factors may emerge which impact our business. It is impossible for us to predict all such factors. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results. We cannot guarantee that any future event or result will be realized, although we believe we have been prudent in our plans and assumptions. Should additional risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from those anticipated. Investors should bear this in mind as they consider forward-looking statements.
We undertake no obligation to publicly update forward-looking statements, whether as a result of subsequent events, new information or otherwise.


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