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Pool Corporation Reports Record Second Quarter Results and Updates 2016 Earnings Guidance Range

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Highlights

  • Net sales growth of 8% with base business net sales growth of 6% for the quarter
  • Operating income growth of 10% for the quarter, 19% year to date
  • Q2 2016 diluted EPS increased 13% to $1.98 with year to date diluted EPS up 21% to $2.35
  • Updated 2016 earnings guidance range to $3.30 - $3.45 per diluted share

COVINGTON, La., July 21, 2016 (GLOBE NEWSWIRE) -- Pool Corporation (NASDAQ: POOL) today reported record results for the second quarter of 2016 and the six months ended June 30, 2016.

"Our second quarter 2016 results modestly exceeded expectations with May and June sales each surpassing $300.0 million, a first in our company's history.  It is especially noteworthy, that in the height of the season, when our customers are relying on distribution the most, we believe we become their best resource. We work diligently to make sure we are stocking what our customers need, when and where they need it, while ensuring inventory integrity and timely replenishment.  Our ability to provide exceptional service, coupled with our commitment to invest in helping our customers grow and succeed, reinforces our unique value proposition in the marketplace," said Manuel Perez de la Mesa, President and CEO.

Net sales for the second quarter of 2016 increased 8% to a record $918.9 million compared to $851.9 million in the second quarter of 2015, with base business sales up 6% for the period.  Our sales continue to benefit from stronger consumer discretionary spending as evidenced by our increase in sales of building materials and pool equipment, as consumers continue to invest in enhancing their outdoor living spaces.  Overall, quarter over quarter weather comparisons were neutral.

Gross profit for the second quarter of 2016 increased 9% to a record $270.7 million from $248.3 million in the same period of 2015.  Base business gross profit improved 7% over the second quarter of last year.  Gross profit as a percentage of net sales (gross margin) increased almost 40 basis points to 29.5% compared to the second quarter of 2015, mostly reflecting improvements in our supply chain management.

Selling and administrative expenses (operating expenses) increased 8% to $128.3 million in the second quarter of 2016 compared to the second quarter of 2015, with base business operating expenses up 6% over the comparable 2015 period.  These increases were due primarily to higher performance-based compensation recognized based on results through the second quarter compared to the same period last year, as well as higher volume-driven labor and freight expenses. 

Operating income for the second quarter increased 10% to a record $142.4 million compared to the same period in 2015.  Operating income as a percentage of net sales (operating margin) was 15.5% for the second quarter of 2016 compared to 15.2% in the second quarter of 2015. 

Net income attributable to Pool Corporation increased 10% to a record $85.4 million in the second quarter of 2016, compared to $77.9 million for the second quarter of 2015.  Earnings per share increased to a record $1.98 per diluted share for the three months ended June 30, 2016 versus $1.75 per diluted share for the comparable period in 2015.

Net sales for the six months ended June 30, 2016 increased 10% to a record $1,434.1 million from $1,302.3 million in the comparable 2015 period, with much of this growth coming from the 9% improvement in base business sales. Gross margin improved approximately 30 basis points to 28.9% in the first half of 2016 compared to the same period last year.

Operating expenses increased 6% compared to the first half of 2015, with base business operating expenses up 4%.  Operating income for the first six months of 2016 increased 19% to $172.0 million compared to $144.7 million in the same period last year.

Earnings per share for the first six months of 2016 increased 21% to a record $2.35 per diluted share on Net income attributable to Pool Corporation of $101.8 million, compared to $1.94 per diluted share on Net income attributable to Pool Corporation of $86.3 million in the comparable 2015 period.

On the balance sheet, total net receivables increased 10% while inventory levels grew 4% compared to June 30, 2015.  Total debt outstanding at June 30, 2016 was $500.6 million, a $7.0 million increase over total debt at June 30, 2015.

Cash used in operations was $13.8 million for the first six months of 2016 compared to $56.6 million for the first six months of 2015.  The improvement in cash used in operations is primarily related to our net income growth and the deferral of our second quarter estimated tax payments as allowed for areas affected by severe storms and flooding in Louisiana.  Adjusted EBITDA (as defined in the addendum to this release) was $150.3 million and $135.9 million for the second quarters of 2016 and 2015, respectively, and $186.9 million and $157.5 million for the six months ended June 30, 2016 and June 30, 2015, respectively.

"Factoring in our early second quarter acquisition and modestly better than expected second quarter base business sales, we are increasing our 2016 earnings guidance to a range of $3.30 to $3.45 per diluted share, from our previously disclosed range of $3.25 to $3.40 per diluted share.  Our expectations for the second half of the year remain unchanged.  We strive to be not only a source for our customers, but also a resource.  Our ongoing investments in our business are all indirect investments in our customers.  We believe that solid execution at every level of the company allows us to provide the highest service levels in our industry and is the key to our success," said Perez de la Mesa.

POOLCORP is the world's largest wholesale distributor of swimming pool and related backyard products.  Currently, POOLCORP operates 344 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 Six Months Ended
 June 30, June 30,
 2016 2015 2016 2015
Net sales$918,889  $851,855  $1,434,139  $1,302,285 
Cost of sales648,153  603,595  1,020,380  929,224 
Gross profit270,736  248,260  413,759  373,061 
Percent29.5% 29.1% 28.9% 28.6%
        
Selling and administrative expenses128,316  119,128  241,809  228,330 
Operating income142,420  129,132  171,950  144,731 
Percent15.5% 15.2% 12.0% 11.1%
        
Interest and other non-operating expenses, net4,001  1,900  6,965  3,895 
Income before income taxes and equity earnings138,419  127,232  164,985  140,836 
Provision for income taxes53,209  49,493  63,437  54,785 
Equity earnings in unconsolidated investments, net37  70  62  191 
Net income85,247  77,809  101,610  86,242 
Net (income) loss attributable to noncontrolling interest188  115  196  101 
Net income attributable to Pool Corporation$85,435  $77,924  $101,806  $86,343 
        
Earnings per share:       
Basic$2.03  $1.80  $2.42  $1.99 
Diluted$1.98  $1.75  $2.35  $1.94 
Weighted average shares outstanding:       
Basic42,030  43,322  42,128  43,461 
Diluted43,152  44,458  43,230  44,606 
        
Cash dividends declared per common share$0.31  $0.26  $0.57  $0.48 

 

POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
   June 30,  June 30,  Change 
   2016  2015  $ % 
             
Assets           
Current assets:           
 Cash and cash equivalents$30,551  $38,944  $(8,393) (22)%
 Receivables, net 119,113   93,709   25,404  27  
 Receivables pledged under receivables facility 231,899   224,789   7,110  3  
 Product inventories, net 493,254   473,362   19,892  4  
 Prepaid expenses and other current assets 13,044   11,226   1,818  16  
 Deferred income taxes 5,533   3,104   2,429  78  
Total current assets 893,394   845,134   48,260  6  
             
Property and equipment, net 85,387   65,151   20,236  31  
Goodwill 186,092   172,815   13,277  8  
Other intangible assets, net 14,058   11,643   2,415  21  
Equity interest investments 1,119   1,328   (209) (16) 
Other assets 15,613   13,841   1,772  13  
Total assets$1,195,663  $1,109,912  $85,751  8 %
             
Liabilities, redeemable noncontrolling interest and stockholders' equity           
Current liabilities:           
 Accounts payable$265,349  $236,868  $28,481  12 %
 Accrued expenses and other current liabilities 114,993   80,480   34,513  43  
 Short-term borrowings and current portion of long-term debt and other long-term liabilities 6,823   3,430   3,393  99  
Total current liabilities 387,165   320,778   66,387  21  
             
Deferred income taxes 28,239   23,642   4,597  19  
Long-term debt, net 493,783   490,150   3,633  1  
Other long-term liabilities 17,875   13,837   4,038  29  
Total liabilities 927,062   848,407   78,655  9  
Redeemable noncontrolling interest 2,511   2,766   (255) (9) 
Total stockholders' equity 266,090   258,739   7,351  3  
Total liabilities, redeemable noncontrolling interest and stockholders' equity$1,195,663  $1,109,912  $85,751  8 %
                

1. The allowance for doubtful accounts was $3.3 million at June 30, 2016 and June 30, 2015.
2. The inventory reserve was $8.6 million at June 30, 2016 and $7.9 million at June 30, 2015.
3. Net financing costs of $1.3 million were included in Long-term debt at June 30, 2016 and $1.7 million at June 30, 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)
 
  Six Months Ended    
  June 30,    
  2016  2015  Change 
Operating activities         
Net income$101,610  $86,242  $15,368  
Adjustments to reconcile net income to cash used in operating activities:         
 Depreciation 9,743   7,687   2,056  
 Amortization 735   532   203  
 Share-based compensation 4,850   4,850     
 Excess tax benefits from share-based compensation (3,203)  (4,568)  1,365  
 Equity earnings in unconsolidated investments, net (62)  (191)  129  
 Other 2,270   1,339   931  
Changes in operating assets and liabilities, net of effects of acquisitions:         
 Receivables (187,526)  (177,193)  (10,333) 
 Product inventories (14,481)  (7,849)  (6,632) 
 Prepaid expenses and other assets (1,729)  4   (1,733) 
 Accounts payable 15,041   487   14,554  
 Accrued expenses and other current liabilities 58,995   32,014   26,981  
Net cash used in operating activities (13,757)  (56,646)  42,889  
          
Investing activities         
Acquisition of businesses, net of cash acquired (19,211)  (479)  (18,732) 
Purchases of property and equipment, net of sale proceeds (25,779)  (16,200)  (9,579) 
Payments to fund credit agreement (2,232)  (5,350)  3,118  
Collections from credit agreement 2,475   3,407   (932) 
Other investments, net 17   59   (42) 
Net cash used in investing activities (44,730)  (18,563)  (26,167) 
          
Financing activities         
Proceeds from revolving line of credit 629,351   526,116   103,235  
Payments on revolving line of credit (604,470)  (466,005)  (138,465) 
Proceeds from asset-backed financing 145,000   128,400   16,600  
Payments on asset-backed financing (2,800)  (16,000)  13,200  
Proceeds from short-term borrowings, long-term debt and other long-term liabilities 12,110   4,110   8,000  
Payments on short-term borrowings, long-term debt and other long-term liabilities (6,987)  (2,209)  (4,778) 
Excess tax benefits from share-based compensation 3,203   4,568   (1,365) 
Proceeds from stock issued under share-based compensation plans 5,699   8,372   (2,673) 
Payments of cash dividends (23,957)  (20,855)  (3,102) 
Purchases of treasury stock (80,478)  (62,701)  (17,777) 
Net cash provided by financing activities 76,671   103,796   (27,125) 
Effect of exchange rate changes on cash and cash equivalents (870)  (4,473)  3,603  
Change in cash and cash equivalents 17,314   24,114   (6,800) 
Cash and cash equivalents at beginning of period 13,237   14,830   (1,593) 
Cash and cash equivalents at end of period$30,551  $38,944  $(8,393) 
             

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
 June 30,June 30,June 30,
 2016 2015 2016 2015 2016 2015
Net sales$902,057  $851,777  $16,832  $78  $918,889  $851,855 
            
Gross profit265,619  248,262  5,117  (2) 270,736  248,260 
Gross margin29.4% 29.1% 30.4% (2.6)% 29.5% 29.1%
            
Operating expenses125,701  119,087  2,615  41  128,316  119,128 
Expenses as a % of net sales13.9% 14.0% 15.5% 52.6% 14.0% 14.0%
            
Operating income (loss)139,918  129,175  2,502  (43) 142,420  129,132 
Operating margin15.5% 15.2% 14.9% (55.1)% 15.5% 15.2%


(Unaudited)Base Business Excluded Total
(in thousands)Six Months Ended Six Months Ended Six Months Ended
 June 30, June 30, June 30,
 2016 2015 2016 2015 2016 2015
Net sales$1,412,564  $1,301,606  $21,575  $679  $1,434,139  $1,302,285 
            
Gross profit407,485  372,886  6,274  175  413,759  373,061 
Gross margin28.8% 28.6% 29.1% 25.8% 28.9% 28.6%
            
Operating expenses237,604  228,028  4,205  302  241,809  228,330 
Expenses as a % of net sales16.8% 17.5% 19.5% 44.5% 16.9% 17.5%
            
Operating income (loss)169,881  144,858  2,069  (127) 171,950  144,731 
Operating margin12.0% 11.1% 9.6% (18.7)% 12.0% 11.1%
                  

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

 
Acquired (1)
  
Acquisition
Date
 Net
Sales Centers
Acquired
 Periods
Excluded
Metro Irrigation Supply Company Ltd. April 2016 8 April - June 2016
The Melton Corporation November 2015 2 January - June 2016
Seaboard Industries, Inc. October 2015 3 January - June 2016
Poolwerx Development LLC April 2015 1 January - June 2016 and
April - June 2015
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 six months of 2016.

December 31, 2015336  
Acquired locations8  
New locations2  
Consolidated locations(2) 
June 30, 2016344  
   

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  Six Months Ended 
(In thousands) June 30,  June 30, 
   2016  2015  2016  2015 
Net income$85,247  $77,809  $101,610  $86,242  
 Add:            
 Interest and other non-operating expenses (1) 4,001   1,900   6,965   3,895  
 Provision for income taxes 53,209   49,493   63,437   54,785  
 Share-based compensation 2,570   2,679   4,850   4,850  
 Equity earnings in unconsolidated investments (37)  (70)  (62)  (191) 
 Depreciation 5,007   3,976   9,743   7,687  
 Amortization (2) 262   97   378   218  
Adjusted EBITDA$150,259  $135,884  $186,921  $157,486  
                 

(1) Shown net of interest income and includes amortization of deferred financing costs as discussed below.
(2) Excludes amortization of deferred financing costs of $134 and $157 for the three months ended June 30, 2016 and June 30, 2015, respectively, and $357 and $314 for the six months ended June 30, 2016 and June 30, 2015, 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, 
   2016  2015  2016  2015 
Adjusted EBITDA$150,259  $135,884  $186,921  $157,486  
 Add:            
 Interest and other non-operating expenses, net of interest income (3,867)  (1,743)  (6,608)  (3,581) 
 Provision for income taxes (53,209)  (49,493)  (63,437)  (54,785) 
                  
 Excess tax benefits from share-based compensation (423)  (830)  (3,203)  (4,568) 
 Other (64)  (768)  2,270   1,339  
 Change in operating assets and liabilities (66,700)  (82,043)  (129,700)  (152,537) 
Net cash provided by (used in) operating activities$25,996  $1,007  $(13,757) $(56,646) 
                 
CONTACT: Craig K. Hubbard 985.801.5117 craig.hubbard@poolcorp.com

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