Market Overview

Pool Corporation Reports Record First Quarter Results and Updates 2016 Earnings Guidance

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Highlights

  • Net sales growth of 14% with base business net sales growth of 13% for the quarter
  • Operating income growth of 89%
  • Q1 2016 diluted EPS doubled to $0.38
  • Increased 2016 earnings guidance range to $3.25 - $3.40 per diluted share

COVINGTON, La., April 21, 2016 (GLOBE NEWSWIRE) -- Pool Corporation (NASDAQ: POOL) today reported record results for the first quarter of 2016.

"Warmer weather across most seasonal markets resulted in an earlier than normal start to the pool season.  Accelerated customer early buy deliveries, an additional selling day compared to the same period last year, and continued exceptional execution by our team all contributed to our strong start in 2016.  We leveraged the tools and resources uniquely available to us to provide a differentiated value proposition to help our customers succeed and we made the most of it," said Manuel Perez de la Mesa, President and CEO.

Net sales for the first quarter of 2016 increased 14% to a record $515.3 million compared to $450.4 million in the first quarter of 2015, with base business sales up 13% for the period.  Our sales growth is primarily attributable to continued strength in consumer discretionary spending and seasonably favorable weather.  The increase also included a 3% impact from accelerated customer early buy purchases, an almost 2% impact from one additional selling day in the quarter, and market share gains.

Gross profit for the first quarter of 2016 increased 15% to a record $143.0 million from $124.8 million in the same period of 2015.  Base business gross profit improved 14% over the first quarter of last year.  Gross profit as a percentage of net sales (gross margin) increased 10 basis points to 27.8% compared to the first quarter of 2015.

Selling and administrative expenses (operating expenses) increased 4% to $113.5 million in the first quarter of 2016 compared to the first quarter of 2015, with base business operating expenses up 3% over the comparable 2015 period.  These increases were due primarily to labor-related costs and marketing and volume-driven freight expenses. 

Operating income for the first quarter increased 89% to a record $29.5 million compared to the same period in 2015.  Operating income as a percentage of net sales (operating margin) was 5.7% for the first quarter of 2016 compared to 3.5% in the first quarter of 2015. 

Net income attributable to Pool Corporation increased 94% to a record $16.4 million in the first quarter of 2016, compared to $8.4 million for the first quarter of 2015.  Earnings per share doubled to a record $0.38 per diluted share for the three months ended March 31, 2016 versus $0.19 per diluted share for the comparable period in 2015.

On the balance sheet, total net receivables increased 19% while inventory levels grew 6% compared to March 31, 2015.  Total debt outstanding at March 31, 2016 was $450.5 million, a $57.7 million, or 15% increase over total debt at March 31, 2015.

Cash used in operations was $39.8 million for the first three months of 2016 compared to $57.7 million for the first three months of 2015.  The improvement in cash used in operations is primarily related to our net income growth.  Adjusted EBITDA (as defined in the addendum to this release) was $36.7 million and $21.6 million for the first quarters of 2016 and 2015, respectively.

"We are updating our fiscal 2016 earnings guidance to a range of $3.25 to $3.40 per diluted share, from our previously reported range of $3.20 to $3.35 per diluted share, given our first quarter results and expectations for the balance of the year.  While we have good momentum from the mild winter, we expect that second quarter results will be impacted by the acceleration of sales into the first quarter.  We look forward to serving our customers and suppliers during the next several months when the pool season is most intense and when our service level is most distinctive.  Our ongoing investments in our business enable us to address the opportunities market by market and customer by customer, and earn our business each and every day," said Perez de la Mesa.

POOLCORP is the world's largest wholesale distributor of swimming pool and related backyard products.  Currently, POOLCORP operates 338 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 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

 

POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
 
 Three Months Ended
 March 31,
 2016 2015
Net sales$515,250  $450,430 
Cost of sales372,227  325,629 
Gross profit143,023  124,801 
Percent27.8% 27.7%
    
Selling and administrative expenses113,493  109,202 
Operating income29,530  15,599 
Percent5.7% 3.5%
    
Interest and other non-operating expenses, net2,964  1,995 
Income before income taxes and equity earnings26,566  13,604 
Provision for income taxes10,228  5,292 
Equity earnings in unconsolidated investments, net25  121 
Net income16,363  8,433 
Net (income) loss attributable to noncontrolling interest8  (14)
Net income attributable to Pool Corporation$16,371  $8,419 
    
Earnings per share:   
Basic$0.39  $0.19 
Diluted$0.38  $0.19 
Weighted average shares outstanding:   
Basic42,226  43,601 
Diluted43,317  44,756 
    
Cash dividends declared per common share$0.26  $0.22 



POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
   March 31,  March 31,  Change 
   2016  2015  $ % 
             
Assets           
Current assets:           
 Cash and cash equivalents$9,965  $5,048  $4,917  97 %
 Receivables, net 67,802   56,117   11,685  21  
 Receivables pledged under receivables facility 215,956   182,610   33,346  18  
 Product inventories, net 595,393   559,260   36,133  6  
 Prepaid expenses and other current assets 13,022   11,066   1,956  18  
 Deferred income taxes 5,536   3,091   2,445  79  
Total current assets 907,674   817,192   90,482  11  
             
Property and equipment, net 78,210   62,509   15,701  25  
Goodwill 173,605   172,335   1,270  1  
Other intangible assets, net 11,835   11,735   100  1  
Equity interest investments 1,271   1,345   (74) (6) 
Other assets 20,646   17,488   3,158  18  
Total assets$1,193,241  $1,082,604  $110,637  10 %
             
Liabilities, redeemable noncontrolling interest and stockholders' equity           
Current liabilities:           
 Accounts payable$438,705  $375,995  $62,710  17 %
 Accrued expenses and other current liabilities 49,370   32,188   17,182  53  
 Short-term borrowings and current portion of long-term debt and other long-term liabilities 5,996      5,996  NM 
Total current liabilities 494,071   408,183   85,888  21  
             
Deferred income taxes 29,267   23,918   5,349  22  
Long-term debt, net 444,461   392,749   51,712  13  
Other long-term liabilities 16,438   13,354   3,084  23  
Total liabilities 984,237   838,204   146,033  17  
Redeemable noncontrolling interest 2,769   2,911   (142) (5) 
Total stockholders' equity 206,235   241,489   (35,254) (15) 
Total liabilities, redeemable noncontrolling interest and stockholders' equity$1,193,241  $1,082,604  $110,637  10 %

__________________

1.  The allowance for doubtful accounts was $4.3 million at March 31, 2016 and $4.1 million at March 31, 2015.
2.  The inventory reserve was $8.3 million at March 31, 2016 and $7.2 million at March 31, 2015.
3.  Net financing costs of $1.4 million at March 31, 2016 and $1.8 million at March 31, 2015 were reclassed from Other assets to Long-term debt upon adoption of ASU 2015-03. 

 

POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
  Three Months Ended    
  March 31,    
  2016  2015  Change 
Operating activities         
Net income$16,363  $8,433  $7,930  
Adjustments to reconcile net income to cash used in operating activities:         
 Depreciation 4,736   3,711   1,025  
 Amortization 339   278   61  
 Share-based compensation 2,280   2,171   109  
 Excess tax benefits from share-based compensation (2,780)  (3,738)  958  
 Equity earnings in unconsolidated investments, net (25)  (121)  96  
 Other 2,334   2,107   227  
Changes in operating assets and liabilities, net of effects of acquisitions:         
 Receivables (125,331)  (98,163)  (27,168) 
 Product inventories (119,300)  (93,133)  (26,167) 
 Prepaid expenses and other assets (2,477)  64   (2,541) 
 Accounts payable 189,915   138,792   51,123  
 Accrued expenses and other current liabilities (5,807)  (18,054)  12,247  
Net cash used in operating activities (39,753)  (57,653)  17,900  
          
Investing activities         
Acquisition of businesses, net of cash acquired (100)  (319)  219  
Purchases of property and equipment, net of sale proceeds (13,405)  (8,797)  (4,608) 
Payments to fund credit agreement (2,315)  (5,350)  3,035  
Other investments, net 11   (57)  68  
Net cash used in investing activities (15,809)  (14,523)  (1,286) 
          
Financing activities         
Proceeds from revolving line of credit 286,845   217,207   69,638  
Payments on revolving line of credit (233,952)  (188,457)  (45,495) 
Proceeds from asset-backed financing 65,000   62,500   2,500  
Payments on asset-backed financing    (16,000)  16,000  
Proceeds from short-term borrowings, long-term debt and other long-term liabilities 5,995   680   5,315  
Payments on short-term borrowings, long-term debt and other long-term liabilities (1,700)  (2,209)  509  
Excess tax benefits from share-based compensation 2,780   3,738   (958) 
Proceeds from stock issued under share-based compensation plans 4,934   6,229   (1,295) 
Payments of cash dividends (10,927)  (9,607)  (1,320) 
Purchases of treasury stock (65,860)  (8,393)  (57,467) 
Net cash provided by financing activities 53,115   65,688   (12,573) 
Effect of exchange rate changes on cash and cash equivalents (825)  (3,294)  2,469  
Change in cash and cash equivalents (3,272)  (9,782)  6,510  
Cash and cash equivalents at beginning of period 13,237   14,830   (1,593) 
Cash and cash equivalents at end of period$9,965  $5,048  $4,917  

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 BusinessExcludedTotal
(in thousands)Three Months EndedThree Months EndedThree Months Ended
 March 31,March 31,March 31,
 2016 2015 2016 2015 2016 2015
Net sales$510,517  $449,824  $4,733  $606  $515,250  $450,430 
            
Gross profit141,854  124,624  1,169  177  143,023  124,801 
Gross margin27.8% 27.7% 24.7% 29.2% 27.8% 27.7%
            
Operating expenses112,002  108,927  1,491  275  113,493  109,202 
Expenses as a % of net sales21.9% 24.2% 31.5% 45.4% 22.0% 24.2%
            
Operating income (loss)29,852  15,697  (322) (98) 29,530  15,599 
Operating margin5.8% 3.5% (6.8)% (16.2)% 5.7% 3.5%

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

 

Acquired (1)
 Acquisition
Date
 Net
Sales Centers
Acquired
 Periods
Excluded
The Melton Corporation November 2015 2 January - March 2016
Seaboard Industries, Inc. October 2015 3 January - March 2016
Poolwerx Development LLC April 2015 1 January - March 2016
St. Louis Hardscape Material & Supply, LLC December 2014 1 January - March 2016 and
January - March 2015

(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 three months of 2016.

December 31, 2015336  
Acquired  
New locations2  
Consolidated locations  
March 31, 2016338 

Adjusted EBITDA

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 
(In thousands) March 31, 
   2016  2015 
Net income$16,363  $8,433  
 Add:      
 Interest and other non-operating expenses (1) 2,964   1,995  
 Provision for income taxes 10,228   5,292  
 Share-based compensation 2,280   2,171  
 Equity earnings in unconsolidated investments (25)  (121) 
 Depreciation 4,736   3,711  
 Amortization (2) 116   121  
Adjusted EBITDA$36,662  $21,602  

(1)   Shown net of interest income and includes amortization of deferred financing costs as discussed below.
(2)   Excludes amortization of deferred financing costs of $223 and $157 for the three months ended March 31, 2016 and March 31, 2015, respectively.

The table below presents a reconciliation of Adjusted EBITDA to net cash used in operating activities.  Please see page 5 for our Condensed Consolidated Statements of Cash Flows.

(Unaudited) Three Months Ended 
(In thousands) March 31, 
   2016  2015 
Adjusted EBITDA$36,662  $21,602  
 Add:      
 Interest and other non-operating expenses, net of interest income (2,741)  (1,838) 
 Provision for income taxes (10,228)  (5,292) 
 Excess tax benefits from share-based compensation (2,780)  (3,738) 
 Other 2,334   2,107  
 Change in operating assets and liabilities (63,000)  (70,494) 
Net cash used in operating activities$(39,753) $(57,653) 
CONTACT: Craig K. Hubbard 985.801.5117 craig.hubbard@poolcorp.com

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