Pool Corporation Reports Record Second Quarter Results and Narrows 2015 Earnings Guidance Range
- Record second quarter and year to date results
- Q2 diluted EPS of $1.75, up 9% over Q2 2014; year to date diluted EPS of $1.94, up 15% over first half of 2014
- Updated 2015 earnings guidance range to $2.72 - $2.82 per diluted share
COVINGTON, La., July 23, 2015 (GLOBE NEWSWIRE) -- Pool Corporation (NASDAQ: POOL) today reported record results for the second quarter of 2015.
"Our domestic blue business realized 6% sales growth year to date and 3% sales growth in the second quarter of 2015 compared to the prior year periods. Adverse weather conditions in a number of our significant markets affected our second quarter growth, as did the shift of early buy shipments into the first quarter. Our customers currently have a larger than normal backlog, given lost workdays, as a result of record rainfall in many important markets. Conversely, in markets where weather was normal, our results met or exceeded our expectations. In local currencies, our international business generated an estimated 8% aggregate sales growth rate year to date and an estimated 6% aggregate sales growth rate for the quarter. When translated into U.S. dollars, our international business negatively impacted our consolidated sales growth rates due to the nearly 20% appreciation of the U.S. dollar relative to most international currencies since this time last year," said Manuel Perez de la Mesa, President and CEO.
Net sales for the second quarter of 2015 were a record $851.9 million compared to $848.2 million in the second quarter of 2014, with base business sales flat for the period. The decline in foreign currency exchange rates relative to the U.S. dollar negatively impacted our consolidated sales growth rate by approximately 2% period over period. Excessive precipitation in Texas and adjacent states significantly impacted our second quarter sales, delaying construction projects and reducing spending on related discretionary products. Cooler than normal temperatures in the Midwest and the Northeast delayed pool openings and inhibited sales growth in these markets.
Gross profit for the second quarter of 2015 increased 1% to a record $248.3 million from $247.0 million in the same period of 2014. Gross profit as a percentage of net sales (gross margin) was 29.1% in both the second quarter of 2015 and 2014.
Selling and administrative expenses (operating expenses) decreased 4% to $119.1 million in the second quarter of 2015 compared to the second quarter of 2014, with base business operating expenses down 6% for the period. The stronger U.S. dollar relative to foreign currencies favorably impacted our operating expenses by approximately 2%. A reduction in performance-based employee compensation also contributed to this decline.
Operating income for the quarter increased 5% to a record $129.1 million compared to the same period in 2014. Operating income as a percentage of net sales (operating margin) was 15.2% for the second quarter of 2015 compared to 14.4% in the second quarter of 2014. The effect of foreign currency fluctuations from the strengthening of the U.S. dollar on consolidated operating income is an estimated $2.2 million, which includes the comparison of our foreign subsidiaries' second quarter 2015 local currency operating income translated at historical second quarter 2014 exchange rates, to their reported second quarter 2014 U.S. dollar operating income.
Net income attributable to Pool Corporation increased 5% to a record $77.9 million in the second quarter of 2015, compared to $73.9 million for the second quarter of 2014. Earnings per share was a record $1.75 per diluted share for the three months ended June 30, 2015 versus $1.61 per diluted share for the comparable period in 2014. We estimate a $0.03 negative impact on earnings per share in the quarter versus the comparable 2014 period, due to the impact of the stronger U.S. dollar on the translation of foreign currency denominated earnings.
Net sales for the six months ended June 30, 2015 increased 4% to a record $1,302.3 million from $1,254.6 million in the comparable 2014 period, with much of this growth coming from the 3% improvement in base business sales. There was a 2% negative foreign currency translation impact on our consolidated sales growth rate for the first half of 2015 compared to the first half of 2014. Gross margin decreased approximately 15 basis points to 28.6% in the first half of 2015 from the same period last year.
Operating expenses declined 1% compared to the first half of 2014, with base business operating expenses down 2%. The stronger U.S. dollar relative to foreign currencies favorably impacted our year to date operating expenses by approximately 2%. Operating income for the first six months of 2015 increased 10% to $144.7 million compared to $131.1 million in the same period last year. Operating income was adversely affected by an estimated $1.9 million from the impact of foreign currency translation.
Earnings per share for the first six months of 2015 increased 15% to a record $1.94 per diluted share on net income attributable to Pool Corporation of $86.3 million, compared to $1.69 per diluted share on net income of $78.1 million in the comparable 2014 period. We estimate a $0.03 negative impact on earnings per share versus the comparable 2014 period due to the impact of the stronger U.S. dollar on the translation of foreign currency denominated earnings.
On the balance sheet, total net receivables and net inventory levels increased 4% and 5%, respectively, compared to June 30, 2014. Total debt outstanding at June 30, 2015 was $495.3 million, up 15% compared to June 30, 2014.
Cash used in operations was $56.6 million for the first six months of 2015 compared to $50.9 million for the first six months of 2014. The increase in cash used is primarily related to our accounts receivable growth as well as timing differences in our accounts payable cycle. Adjusted EBITDA (as defined in the addendum to this release) was $135.9 million and $128.9 million for the second quarter of 2015 and 2014, respectively, and $157.5 million and $143.3 million for the first six months of 2015 and 2014, respectively.
"With the first half of 2015 behind us, we are narrowing our annual earnings guidance range to $2.72 to $2.82 per diluted share, compared to our previous range of $2.72 to $2.87 per diluted share. Achieving this would represent another year of solid earnings growth as we strive to provide exceptional value to our customers and suppliers. It is in the heat of the season that our unprecedented investments make us THE source for industry professionals," said Perez de la Mesa.
POOLCORP is the world's largest wholesale distributor of swimming pool and related backyard products. Currently, POOLCORP operates 331 sales centers in North America, Europe, South America and Australia, through which it distributes more than 160,000 national brand and private label products to roughly 100,000 wholesale customers. For more information, please visit www.poolcorp.com.
This news release includes "forward-looking" statements that involve risk 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 and other risks detailed in POOLCORP's 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission.
|Consolidated Statements of Income|
|(In thousands, except per share data)|
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Cost of sales||603,595||601,264||929,224||893,508|
|Selling and administrative expenses||119,128||124,477||228,330||229,931|
|Interest expense, net||1,900||1,894||3,895||3,827|
|Income before income taxes and equity earnings||127,232||120,605||140,836||127,318|
|Provision for income taxes||49,493||46,796||54,785||49,400|
|Equity earnings in unconsolidated investments||70||54||191||133|
|Add: net loss attributable to noncontrolling interest||115||—||101||—|
|Net income attributable to Pool Corporation||$||77,924||$||73,863||$||86,343||$||78,051|
|Earnings per share:|
|Weighted average shares outstanding:|
|Cash dividends declared per common share||$||0.26||$||0.22||$||0.48||$||0.41|
|Condensed Consolidated Balance Sheets|
|June 30,||June 30,||Change|
|Cash and cash equivalents||$||38,944||$||27,563||$||11,381||41||%|
|Receivables pledged under receivables facility||224,789||208,973||15,816||8|
|Product inventories, net||473,362||451,507||21,855||5|
|Prepaid expenses and other current assets||11,226||10,055||1,171||12|
|Deferred income taxes||3,104||5,416||(2,312||)||(43||)|
|Total current assets||845,134||801,041||44,093||6|
|Property and equipment, net||65,151||57,275||7,876||14|
|Other intangible assets, net||11,643||10,725||918||9|
|Equity interest investments||1,328||1,263||65||5|
|Other assets, net||15,511||11,344||4,167||37|
|Liabilities, redeemable noncontrolling interest and stockholders' equity|
|Accrued expenses and other current liabilities||80,480||89,200||(8,720||)||(10||)|
|Short-term borrowings and current portion of long-term debt and other long-term liabilities||3,430||—||3,430||100|
|Total current liabilities||320,778||322,749||(1,971||)||(1||)|
|Deferred income taxes||23,642||19,979||3,663||18|
|Other long-term liabilities||13,837||10,432||3,405||33|
|Redeemable noncontrolling interest||2,766||—||2,766||100|
|Total stockholders' equity||258,739||271,317||(12,578||)||(5||)|
|Total liabilities, redeemable noncontrolling interest and stockholders' equity||$||1,111,582||$||1,055,448||$||56,134||5||%|
- The allowance for doubtful accounts was $3.3 million at June 30, 2015 and $4.4 million at June 30, 2014.
- The inventory reserve was $7.9 million at June 30, 2015 and $8.5 million at June 30, 2014.
|Condensed Consolidated Statements of Cash Flows|
|Six Months Ended|
|Adjustments to reconcile net income to net cash used in operating activities:|
|Excess tax benefits from share-based compensation||(4,568||)||(3,920||)||(648||)|
|Equity earnings in unconsolidated investments||(191||)||(133||)||(58||)|
|Changes in operating assets and liabilities, net of effects of acquisitions:|
|Prepaid expenses and other assets||4||(1,350||)||1,354|
|Accrued expenses and other current liabilities||32,014||45,054||(13,040||)|
|Net cash used in operating activities||(56,646||)||(50,888||)||(5,758||)|
|Acquisition of businesses, net of cash acquired||(479||)||(4,612||)||4,133|
|Purchase of property and equipment, net of sale proceeds||(16,200||)||(11,921||)||(4,279||)|
|Payments to fund credit agreement||(5,350||)||—||(5,350||)|
|Collections from credit agreement||3,407||—||3,407|
|Other investments, net||59||96||(37||)|
|Net cash used in investing activities||(18,563||)||(16,437||)||(2,126||)|
|Proceeds from revolving line of credit||526,116||457,218||68,898|
|Payments on revolving line of credit||(466,005||)||(380,665||)||(85,340||)|
|Proceeds from asset-backed financing||128,400||121,600||6,800|
|Payments on asset-backed financing||(16,000||)||(13,600||)||(2,400||)|
|Proceeds from short-term borrowings, long-term debt and other long-term liabilities||4,110||—||4,110|
|Payments on short-term borrowings, long-term debt and other long-term liabilities||(2,209||)||—||(2,209||)|
|Excess tax benefits from share-based compensation||4,568||3,920||648|
|Proceeds from stock issued under share-based compensation plans||8,372||6,335||2,037|
|Payments of cash dividends||(20,855||)||(18,410||)||(2,445||)|
|Purchases of treasury stock||(62,701||)||(88,745||)||26,044|
|Net cash provided by financing activities||103,796||87,653||16,143|
|Effect of exchange rate changes on cash and cash equivalents||(4,473||)||(771||)||(3,702||)|
|Change in cash and cash equivalents||24,114||19,557||4,557|
|Cash and cash equivalents at beginning of period||14,830||8,006||6,824|
|Cash and cash equivalents at end of period||$||38,944||$||27,563||$||11,381|
The following table breaks out our consolidated results into the base business component and the excluded component (sales centers excluded from base business):
|(in thousands)||Three Months Ended||Three Months Ended||Three Months Ended|
|June 30,||June 30,||June 30,|
|Expenses as a % of net sales||13.8||%||14.7||%||41.9||%||19.5||%||14.0||%||14.7||%|
|Operating income (loss)||129,478||122,253||(346||)||246||129,132||122,499|
|(in thousands)||Six Months Ended||Six Months Ended||Six Months Ended|
|June 30,||June 30,||June 30,|
|Expenses as a % of net sales||17.3||%||18.3||%||43.6||%||23.8||%||17.5||%||18.3||%|
|Operating income (loss)||145,412||130,917||(681||)||228||144,731||131,145|
We have excluded the following acquisitions from base business for the periods identified:
|Poolwerx Development LLC (1)||April 2015||1||April - June 2015|
|St. Louis Hardscape Material & Supply, LLC (1) (2)||December 2014||1||January - June 2015|
|Pool Systems Pty. Ltd.||July 2014||3||January - June 2015|
|DFW Stone Supply, LLC (1)||March 2014||2||January - May 2015 and March - May 2014|
|Atlantic Chemical & Aquatics Inc. (1)||February 2014||2||January - April 2015 and February - April 2014|
(1) We acquired certain distribution assets of each of these companies.
(2) We completed this acquisition on December 31, 2014. This sales center is included in our sales center count beginning in January 2015, as shown in the table below which summarizes the changes in our sales centers during 2015.
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 centers in the first six months of 2015. Please see footnote 2 to the acquisition table presented above for further information about our acquired locations.
|December 31, 2014||328|
|June 30, 2015||331|
We define Adjusted EBITDA as net income or net loss plus interest expense, 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||Six Months Ended|
|(In thousands)||June 30,||June 30,|
|Interest expense (1)||1,900||1,894||3,895||3,827|
|Provision for income taxes||49,493||46,796||54,785||49,400|
|Equity earnings in unconsolidated investments||(70||)||(54||)||(191||)||(133||)|
(1) Shown net of interest income and includes amortization of deferred financing costs as discussed below.
(2) Excludes amortization of deferred financing costs of $157 and $133 for the three months ended June 30, 2015 and June 30, 2014, respectively, and $314 and $266 for the six months ended June 30, 2015 and June 30, 2014, respectively.
The table below presents a reconciliation of Adjusted EBITDA to net cash provided by (used in) operating activities. Please see page 5 for our Condensed Consolidated Statements of Cash Flows.
|(Unaudited)||Three Months Ended||Six Months Ended|
|(In thousands)||June 30,||June 30,|
|Interest expense, net of interest income||(1,743||)||(1,761||)||(3,581||)||(3,561||)|
|Provision for income taxes||(49,493||)||(46,796||)||(54,785||)||(49,400||)|
|Excess tax benefits from share-based compensation||(830||)||(2,433||)||(4,568||)||(3,920||)|
|Change in operating assets and liabilities||(82,043||)||(94,120||)||(152,537||)||(140,242||)|
|Net cash provided by (used in) operating activities||$||1,007||$||(13,543||)||$||(56,646||)||$||(50,888||)|