Pool Shares Rise Despite Earnings Miss - Analyst Blog

Louisiana-based Pool Corp.'s POOL shares were up 1.09% in after-hour trading on Apr 17 despite missing first-quarter 2014 earnings. The swimming pool and lifestyle product maker reported earnings of 9 cents per share, which missed the Zacks Consensus Estimate by a penny but surpassed the year-ago quarter figure of 7 cents, driven primarily by higher sales.

Net sales in the reported quarter increased 10.0% year over year to $406.3 million, ahead of the Zacks Consensus Estimate of $397.0 million. The upside reflects an 11.0% year-over-year increase in base business sales. Roughly 2% of the company's sales growth reflected a change in the timing of customer early buy purchases, which effectively shifted sales into the first quarter of 2014 that has previously occurred in the second quarter.

Behind the Headline Numbers

Despite a 10.0% year-over-year increase in cost of sales, gross profit was up 9.0% due to higher sales. However, gross margin declined 20 basis points to 28.1% in the quarter, due to the shift in customer early buy purchases. Operating income during the quarter was $8.6 million, up 25% from the year-ago quarter. However, selling and administrative expenses increased 8.0% year over year to $105.5 million due to higher base business expenses.

Guidance for 2014

For 2014, the company affirmed its expectation for earnings per share in the range of $2.35–$2.45, representing 15.0–20.0% year-over-year growth. The Zacks Consensus Estimate of $2.40 lies within the company guided range.

Driven by gradual recovery in consumer discretionary spending since 2010, the company expects sales to increase in the mid-to-high single-digit range in 2014. Gross profit is also expected to increase year over year.

Our Take

Pool Corp. is well on its path to recovery. Despite the seasonal nature of its business, the company posted improved results driven by the ongoing recovery in discretionary product sales. The revenue beat reflects improving product demand in the U.S. swimming pool construction with the housing market recovery.

Pool currently has a Zacks Rank #3 (Hold). Among other stocks in the same industry, Marine Products Corp. MPX is scheduled to report its first-quarter earnings on Apr 23 while West Marine Inc. WMAR is scheduled to report on Apr 24. Another leisure and recreation product company, Sturm, Ruger & Co. Inc. RGR is expected to announce its earnings on May 5.