COVINGTON, La., July 19, 2018 (GLOBE NEWSWIRE) -- Pool Corporation (NASDAQ:POOL) today reported record results for the second quarter of 2018.
"We had a solid May and June, following the delayed spring in many of our seasonal markets. Despite weather challenges and seasonal capacity constraints on the part of our customers, consumer demand remains high and strongly contributed to our record sales and gross profit growth in the second quarter," said Manuel Perez de la Mesa, President and CEO.
Net sales increased 7% to a record $1,057.8 million in the second quarter of 2018 compared to $988.2 million in the second quarter of 2017. Base business sales grew 6% over the same quarter of last year, with discretionary products such as building materials and equipment leading our sales growth. The impact of a weaker U.S. dollar on sales outside the U.S., primarily Europe, compared to the same period last year also favorably impacted our sales growth by approximately 1%.
Gross profit increased 7% to a record $308.7 million in the second quarter of 2018 from $289.7 million in the same period of 2017. Base business gross profit improved 6% over the second quarter of last year. Gross profit as a percentage of net sales (gross margin) was 29.2% for the second quarter of 2018 compared to 29.3% for the second quarter of 2017. Product mix was the principal factor leading to the slightly lower margin.
Selling and administrative expenses (operating expenses) increased 8% to $146.6 million in the second quarter of 2018 compared to the second quarter of 2017, with base business operating expenses up approximately 7% over the comparable 2017 period. While acquisitions contributed to our overall expense growth, changes in certain non-executive performance-based compensation programs that impact the timing of our expense recognition also resulted in higher compensation expense in the quarter. We believe our results later in the year, particularly in the fourth quarter, should benefit from this timing change. Base business operating expenses also increased due to the unfavorable impact of foreign currency fluctuations, which collectively impacted the quarter's expenses by 1%. As a percentage of sales, base business operating expenses were consistent year over year at 13.6% of sales.
Operating income for the second quarter increased 5% to a record $162.0 million compared to the same period in 2017. Foreign currency exchange rate increases favorably impacted our operating income growth by 1%. Operating income as a percentage of net sales (operating margin) was 15.3% for the second quarter of 2018 and 15.6% for the same period in 2017, while base business operating margin was 15.5% for the second quarter of 2018 and 15.7% for the same period in 2017.
Interest and other non-operating expenses, net increased to $6.0 million in the second quarter of 2018 from $4.0 million in the second quarter of 2017. The $2.0 million increase primarily relates to higher interest rates on our debt and increased borrowings to fund working capital investments and share repurchases, as well as greater realized foreign currency conversion losses compared to the same period last year.
Both Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, which we adopted on January 1, 2017, and U.S. tax reform enacted in December 2017 impacted our income tax provision for the second quarter of 2018. Our effective tax rate was 25.0% and 37.0% for the second quarters of 2018 and 2017, respectively. We recorded a $1.5 million benefit from ASU 2016-09 in the quarter ended June 30, 2018, compared to a benefit of $1.9 million realized in the same period last year. Excluding the benefits from ASU 2016-09, our effective tax rate was 26.0% and 38.3% for the second quarters of 2018 and 2017, respectively. As previously reported, we expect our annual effective tax rate (excluding the benefit from ASU 2016-09) for 2018 and future periods to approximate 25.5%, which is a reduction compared to our historical rate of approximately 38.5% due to the impact of the recent U.S. tax reform.
Net income attributable to Pool Corporation was $117.0 million in the second quarter of 2018 compared to $94.9 million in the second quarter of 2017. Earnings per share increased 27% to a record $2.80 per diluted share for the three months ended June 30, 2018 versus $2.21 per diluted share for the same period in 2017. The reduction in our effective tax rate from 37.0% to 25.0% as discussed above reduced our income tax expense by approximately $18.7 million, or $0.45 per diluted share, in the second quarter of 2018.
Net sales for the six months ended June 30, 2018 increased 7% to a record $1,643.7 million from $1,534.6 million in the comparable 2017 period, with most of this growth coming from the 6% improvement in base business sales. Gross margin was in line with last year at 28.9%.
Operating expenses increased 8% compared to the first half of 2017, with base business operating expenses up 6%. Operating income for the first six months of 2018 increased 6% to $195.6 million compared to $185.2 million in the same period last year.
Our effective tax rate was 20.3% for the six months ended June 30, 2018 compared to 34.2% for the six months ended June 30, 2017. ASU 2016-09 benefited our income tax provision by $10.6 million in the first half of 2018 and $7.4 million in the first half of 2017. Excluding the benefits from ASU 2016-09, our effective tax rate was 26.0% and 38.4% for the six months ended June 30, 2018 and June 30, 2017, respectively.
Net income attributable to Pool Corporation for the six months ended June 30, 2018 was $148.4 million, compared to Net income attributable to Pool Corporation of $117.2 million for the six months ended June 30, 2017. Earnings per share for the first six months of 2018 increased 30% to a record $3.55 per diluted share versus $2.73 per diluted share for the first six months of 2017. The reduction in our effective tax rate as discussed above from 34.2% to 20.3% reduced our income tax expense by approximately $25.9 million, or $0.62 per diluted share, in the first six months of 2018.
On the balance sheet at June 30, 2018, total net receivables, including pledged receivables, increased 9%, while inventory levels grew 12% compared to June 30, 2017. The growth in receivables and inventory includes growth from acquired businesses, while the inventory growth also includes purchases made in advance of certain mid-year vendor price increases. Total debt outstanding was $657.1 million at June 30, 2018, a $103.6 million increase from total debt at June 30, 2017.
Cash used in operations was $36.8 million in the first half of 2018 compared to $41.3 million in the first half of 2017. Adjusted EBITDA (as defined in the addendum to this release) was $172.1 million and $163.8 million in the second quarters of 2018 and 2017, respectively.
"We believe that consumer demand is strong and despite constraints on customer capacity, we should have solid results in the second half of the year. I am confident in our team's ability to address the many opportunities available as is our legacy and to that end have updated our annual earnings guidance to reflect the $0.04 contribution from ASU 2016-09 in the quarter," said Perez de la Mesa.
We have not projected any additional tax benefit from ASU 2016-09 in our earnings guidance range for the remainder of the year. Our current earnings guidance range for 2018 includes only the year to date benefit realized as of June 30, 2018.
POOLCORP is the world's largest wholesale distributor of swimming pool and related backyard products. As of June 30, 2018, POOLCORP operated 358 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 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission. In addition, this press release includes forward-looking statements and estimates regarding the effects of the Tax Cuts and Jobs Act, which are based on our current interpretation of this legislation and on reasonable estimates and may change as a result of new guidance issued by regulators or changes in our estimates.
CONTACT:Curtis J. ScheelDirector of Investor Relations985.email@example.com
POOL CORPORATIONConsolidated Statements of Income(Unaudited)(In thousands, except per share data)
POOL CORPORATIONCondensed Consolidated Balance Sheets(Unaudited)(In thousands)
(1) The allowance for doubtful accounts was $4.1 million at June 30, 2018 and $3.6 million at June 30, 2017.(2) The inventory reserve was $8.4 million at June 30, 2018 and $8.1 million at June 30, 2017.
POOL CORPORATIONCondensed Consolidated Statements of Cash Flows(Unaudited)(In thousands)
The following table breaks out our consolidated results into the base business component and the excluded component (sales centers excluded from base business):
We have excluded the following acquisitions from base business for the periods identified:
(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 six months of 2018.
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.
(1) Shown net of interest income and includes amortization of deferred financing costs as discussed below.(2) Excludes amortization of deferred financing costs of $193 and $136 for the three months ended June 30, 2018 and June 30, 2017, respectively, and $387 and $272 for the six months ended June 30, 2018 and June 30, 2017, respectively.
The table below presents a reconciliation of Adjusted EBITDA to net cash provided by (used in) operating activities. Please see page 6 for our Condensed Consolidated Statements of Cash Flows.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995