Market Overview

Pool Corporation Reports Record Third Quarter Results and Narrows 2017 Earnings Guidance Range

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Highlights

  • Net sales growth of 8% for Q3 2017
  • Q3 2017 diluted EPS increased 13% to $1.16, including an estimated $0.02 negative impact from recent weather events
  • Narrows 2017 earnings guidance range to $4.01 - $4.11 per diluted share, which includes $0.14 in tax benefits realized year to date from new accounting pronouncement

COVINGTON, La., Oct. 19, 2017 (GLOBE NEWSWIRE) -- Pool Corporation (NASDAQ:POOL) today reported record results for the third quarter of 2017.

"Once again, our business performed very well, despite severe weather in certain key markets.  I would like to recognize the resiliency of our people in Florida, Texas, Puerto Rico and Mexico for their efforts through Hurricanes Irma, Harvey, Maria and Katia and the devastating earthquake in Mexico, as well as the many employees throughout the company who went out of their way to aid both their fellow co-workers and the needs of our business.  While these storms are disruptive in the short term, we believe they will not have a material impact on our operating results for the year.  Together with our remaining markets, our team once again produced solid results for the quarter," said Manuel Perez de la Mesa, President and CEO.

Net sales increased 8% to a record $743.4 million in the third quarter of 2017 compared to $691.4 million in the third quarter of 2016.  Base business sales increased 6%.  We had one less selling day in the third quarter of 2017 compared to the same period last year, which we believe negatively impacted base business sales growth by approximately 1%.  Continued increases in swimming pool repair and remodel activities, including major pool refurbishment and replacement of key pool equipment, led our sales growth.  The recent weather events negatively impacted our third quarter 2017 net sales by an estimated $4.0 million.

Gross profit increased 9% to a record $216.6 million in the third quarter of 2017 from $199.6 million in the same period of 2016.  Base business gross profit improved 7% over the third quarter of last year.  Gross profit as a percentage of net sales (gross margin) was 29.1% for the third quarter of 2017 compared to 28.9% for the third quarter of 2016.  Gross margin increased approximately 20 basis points from the third quarter of 2016 reflecting product mix and benefits from sourcing initiatives.  

Selling and administrative expenses (operating expenses) increased approximately 7% to $134.7 million in the third quarter of 2017 compared to the third quarter of 2016, with base business operating expenses up 5% over the comparable 2016 period.  As a percentage of net sales, base business operating expenses declined to 17.9% for the third quarter versus 18.1% last year.

Operating income for the third quarter increased 10% to a record $81.9 million compared to the same period in 2016.  Operating income as a percentage of net sales (operating margin) was 11.0% for the third quarter of 2017 compared to 10.7% for the third quarter of 2016. 

During the first quarter of 2017, we adopted Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, on a prospective basis.  This adoption resulted in a benefit recorded in our provision for income taxes of $7.7 million for the nine months ended September 30, 2017, which positively impacted our net income and earnings per share, but was partially offset by a required increase of approximately 550,000 diluted weighted average shares outstanding used to calculate our diluted earnings per share.  The first and second quarter benefit to our diluted earnings per share from the adoption of this new accounting pronouncement was $0.14, and there was no impact in the third quarter of 2017.

Net income attributable to Pool Corporation was $48.8 million in the third quarter of 2017 compared to $44.5 million for the third quarter of 2016.  Earnings per share increased 13% to a record $1.16 per diluted share for the three months ended September 30, 2017 versus $1.03 per diluted share for the same period in 2016.  Based on the estimated $4.0 million impact on our net sales and $0.5 million in property damages, we believe the recent weather events described above negatively impacted our diluted earnings per share by approximately $0.02 in the third quarter of 2017.   

Net sales increased 7% to a record $2,278.0 million for the nine months ended September 30, 2017 from $2,125.6 million in the comparable 2016 period, with much of this growth coming from the 6% improvement in base business sales.  Gross margin increased 10 basis points to 29.0% compared to the same period last year.

Operating expenses increased 7% compared to the first nine months of 2016, with base business operating expenses up 5%.  Operating income for the first nine months of 2017 increased 9% to $267.1 million compared to $246.1 million in the same period last year.

Net income attributable to Pool Corporation for the nine months ended September 30, 2017 was $166.0 million, including a tax benefit of $7.7 million from the adoption of ASU 2016-09 as discussed above, compared to Net income attributable to Pool Corporation of $146.3 million for the nine months ended September 30, 2016.  Earnings per share for the first nine months of 2017, including a favorable $0.14 per diluted share impact from the new accounting pronouncement, increased 15% to a record $3.89 per diluted share versus $3.39 per diluted share for the first nine months of 2016.  Excluding the impact from the new accounting pronouncement, diluted earnings per share increased 11% for the period.  

On the balance sheet at September 30, 2017, total net receivables, including pledged receivables, increased 13% while inventory levels grew 6% compared to September 30, 2016.  Total debt outstanding at September 30, 2017 was $564.6 million, a $174.4 million increase from total debt at September 30, 2016.

Cash provided by operations was $112.0 million for the first nine months of 2017 compared to $143.2 million for the first nine months of 2016.  Our prior year operating cash flows benefited by approximately $37.0 million due to third quarter tax payments deferred to the fourth quarter of 2016 as allowed for areas affected by severe storms and flooding in Louisiana.  Excluding this timing difference, our increase in cash provided by operations in 2017 reflects our net income growth partially offset by an increase in net working capital.  Our cash provided by operations has been positively impacted by the $7.7 million in tax benefits realized in the first nine months of 2017 as part of the adoption of ASU 2016-09.  Adjusted EBITDA (as defined in the addendum to this release) was $91.7 million and $83.0 million for the third quarters of 2017 and 2016, respectively, and $295.3 million and $269.9 million for the first nine months of 2017 and 2016, respectively.

"With nine months of the year now completed, we are tightening our 2017 earnings guidance range to $4.01 to $4.11 per diluted share.  This updated range includes the $0.14 benefit realized in the first and second quarters due to the adoption of ASU 2016-09.  Excluding this benefit, our narrowed 2017 earnings guidance range is $3.87 to $3.97.  We are now in the process of transitioning to 2018 as we continue to pursue the many opportunities available for profitable growth in the growing outdoor living industry," said Perez de la Mesa.

For clarification, we have not included any additional tax benefit in our earnings guidance range for the remainder of the year.  We previously included an estimated tax benefit of $0.30 per diluted share from the new ASU for fiscal 2017.  Our current earnings guidance range for 2017 includes only the benefit realized year to date.  As previously disclosed, the estimated impact of the accounting change related to our adoption of ASU 2016-09 is subject to several assumptions which can vary significantly, including our share price and estimations regarding the timing of when employees will exercise shares of outstanding vested options.  As of September 30, 2017, based on our current stock price, we estimate that we have approximately $9.5 million in unrealized excess tax benefits for stock option grants which expire in the first quarter of 2018. These unrealized excess tax benefits will yield an estimated net $0.21 diluted earnings per share benefit when individuals exercise these stock options.

POOLCORP is the world's largest wholesale distributor of swimming pool and related backyard products.  As of September 30, 2017, POOLCORP operated 346 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, excess tax benefits or deficiencies recognized under ASU 2016-09 and other risks detailed in POOLCORP's 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

CONTACT:
Curtis J. Scheel
Director of Investor Relations
985.801.5341
curtis.scheel@poolcorp.com



POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
 
 
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2017   2016   2017   2016
Net sales $ 743,401     $ 691,429     $ 2,278,005     $ 2,125,568  
Cost of sales 526,795     491,878     1,618,114     1,512,258  
Gross profit 216,606     199,551     659,891     613,310  
Percent 29.1 %   28.9 %   29.0 %   28.9 %
               
Selling and administrative expenses 134,678     125,385     392,779     367,194  
Operating income 81,928     74,166     267,112     246,116  
Percent 11.0 %   10.7 %   11.7 %   11.6 %
               
Interest and other non-operating expenses, net 4,009     2,989     11,608     9,954  
Income before income taxes and equity earnings 77,919     71,177     255,504     236,162  
Provision for income taxes (1) 29,179     26,807     89,951     90,244  
Equity earnings in unconsolidated investments, net 43     51     121     113  
Net income 48,783     44,421     165,674     146,031  
Net loss attributable to noncontrolling interest     113     294     309  
Net income attributable to Pool Corporation $ 48,783     $ 44,534     $ 165,968     $ 146,340  
               
Earnings per share:              
Basic $ 1.20     $ 1.06     $ 4.04     $ 3.48  
Diluted $ 1.16     $ 1.03     $ 3.89     $ 3.39  
Weighted average shares outstanding:              
Basic 40,659     42,020     41,065     42,092  
Diluted 42,207     43,119     42,691     43,201  
               
Cash dividends declared per common share $ 0.37     $ 0.31     $ 1.05     $ 0.88  

(1) Upon adoption of ASU 2016-09, we were required to recognize all excess tax benefits or deficiencies related to share-based compensation as a component of our income tax provision on our Consolidated Statements of Income, rather than a component of stockholders' equity on our Condensed Consolidated Balance Sheets.  We adopted this guidance during the first quarter of 2017 on a prospective basis, and as such, our prior year presentation has not changed.



  POOL CORPORATION
  Condensed Consolidated Balance Sheets
  (Unaudited)
  (In thousands)
   
      September 30,     September 30,     Change  
      2017     2016     $   %  
                         
Assets                      
Current assets:                      
  Cash and cash equivalents $ 36,398     $ 30,292     $ 6,106     20   %
  Receivables, net (1)   90,142       81,072       9,070     11    
  Receivables pledged under receivables facility   172,654       152,333       20,321     13    
  Product inventories, net (2)   484,287       455,156       29,131     6    
  Prepaid expenses and other current assets   14,832       12,084       2,748     23    
  Deferred income taxes (3)         5,288       (5,288 )   (100 )  
Total current assets   798,313       736,225       62,088     8    
                         
Property and equipment, net   103,880       84,643       19,237     23    
Goodwill   189,024       185,486       3,538     2    
Other intangible assets, net   13,206       13,645       (439 )   (3 )  
Equity interest investments   1,168       1,152       16     1    
Other assets (3)   16,333       16,370       (37 )      
Total assets $ 1,121,924     $ 1,037,521     $ 84,403     8   %
                         
Liabilities, redeemable noncontrolling interest and stockholders' equity                      
Current liabilities:                      
  Accounts payable $ 209,062     $ 199,922     $ 9,140     5   %
  Accrued expenses and other current liabilities (3)   87,887       126,654       (38,767 )   (31 )  
  Short-term borrowings and current portion of long-term debt and other long-term liabilities   8,609       1,298       7,311     NM  
Total current liabilities   305,558       327,874       (22,316 )   (7 )  
                         
Deferred income taxes (3)   27,244       28,359       (1,115 )   (4 )  
Long-term debt, net   555,964       388,891       167,073     43    
Other long-term liabilities   22,614       17,945       4,669     26    
Total liabilities   911,380       763,069       148,311     19    
Redeemable noncontrolling interest         2,467       (2,467 )   (100 )  
Total stockholders' equity   210,544       271,985       (61,441 )   (23 )  
Total liabilities, redeemable noncontrolling interest and stockholders' equity $ 1,121,924     $ 1,037,521     $ 84,403     8   %

(1)  The allowance for doubtful accounts was $4.1 million at September 30, 2017 and $3.7 million at September 30, 2016.
(2)  The inventory reserve was $7.8 million at September 30, 2017 and $8.1 million at September 30, 2016.
(3)  Upon adoption of ASU 2015-17, Balance Sheet Classification of Deferred Taxes, we were required to reclassify all of our deferred tax assets and liabilities as noncurrent on our Condensed Consolidated Balance Sheets.  We adopted this guidance on a prospective basis, and as such, our prior year balances or classifications have not changed.


POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
    Nine Months Ended        
    September 30,        
    2017     2016     Change  
Operating activities                  
Net income $ 165,674     $ 146,031     $ 19,643    
Adjustments to reconcile net income to cash provided by operating activities:                  
  Depreciation   17,947       15,020       2,927    
  Amortization   1,132       1,288       (156 )  
  Share-based compensation   9,496       7,373       2,123    
  Excess tax benefits from share-based compensation (1)         (6,582 )     6,582    
  Equity earnings in unconsolidated investments, net   (121 )     (113 )     (8 )  
  Other   1,074       3,799       (2,725 )  
Changes in operating assets and liabilities, net of effects of acquisitions:                  
  Receivables   (90,204 )     (71,936 )     (18,268 )  
  Product inventories   9,057       23,624       (14,567 )  
  Prepaid expenses and other assets   (1,523 )     (1,094 )     (429 )  
  Accounts payable   (27,328 )     (49,479 )     22,151    
  Accrued expenses and other current liabilities   26,816       75,239       (48,423 )  
Net cash provided by operating activities   112,020       143,170       (31,150 )  
                   
Investing activities                  
Acquisition of businesses, net of cash acquired   (6,879 )     (19,314 )     12,435    
Purchases of property and equipment, net of sale proceeds   (37,709 )     (30,388 )     (7,321 )  
Payments to fund credit agreement         (3,852 )     3,852    
Collections from credit agreement         3,300       (3,300 )  
Other investments, net   4       21       (17 )  
Net cash used in investing activities   (44,584 )     (50,233 )     5,649    
                   
Financing activities                  
Proceeds from revolving line of credit   918,338       873,854       44,484    
Payments on revolving line of credit   (857,609 )     (866,801 )     9,192    
Proceeds from asset-backed financing   156,600       145,000       11,600    
Payments on asset-backed financing   (97,800 )     (90,000 )     (7,800 )  
Proceeds from short-term borrowings, long-term debt and other long-term liabilities   25,001       15,705       9,296    
Payments on short-term borrowings, long-term debt and other long-term liabilities   (17,497 )     (16,107 )     (1,390 )  
Payments of deferred financing costs   (909 )           (909 )  
Payments of deferred and contingent acquisition consideration   (199 )           (199 )  
Purchase of redeemable noncontrolling interest   (2,573 )           (2,573 )  
Excess tax benefits from share-based compensation (1)         6,582       (6,582 )  
Proceeds from stock issued under share-based compensation plans   8,647       10,978       (2,331 )  
Payments of cash dividends   (43,165 )     (37,007 )     (6,158 )  
Purchases of treasury stock   (141,580 )     (117,901 )     (23,679 )  
Net cash used in financing activities   (52,746 )     (75,697 )     22,951    
Effect of exchange rate changes on cash and cash equivalents   (248 )     (185 )     (63 )  
Change in cash and cash equivalents   14,442       17,055       (2,613 )  
Cash and cash equivalents at beginning of period   21,956       13,237       8,719    
Cash and cash equivalents at end of period $ 36,398     $ 30,292     $ 6,106    

(1) Upon adoption of ASU 2016-09, the excess tax benefit from share-based compensation is no longer reclassified out of operating income tax cash flows and no longer reported as a financing activity.  We adopted this guidance on a prospective basis, and as such, our prior year presentation has not changed.


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 Business Excluded Total
(in thousands) Three Months Ended Three Months Ended Three Months Ended
  September 30, September 30, September 30,
  2017   2016   2017   2016   2017   2016
Net sales $ 734,175     $ 691,204     $ 9,226     $ 225     $ 743,401     $ 691,429  
                       
Gross profit 213,788     199,455     2,818     96     216,606     199,551  
Gross margin 29.1 %   28.9 %   30.5 %   42.7 %   29.1 %   28.9 %
                       
Operating expenses 131,066     125,225     3,612     160     134,678     125,385  
Expenses as a % of net sales 17.9 %   18.1 %   39.2 %   71.1 %   18.1 %   18.1 %
                       
Operating income (loss) 82,722     74,230     (794 )   (64 )   81,928     74,166  
Operating margin 11.3 %   10.7 %   (8.6 )%   (28.4 )%   11.0 %   10.7 %


(Unaudited) Base Business Excluded Total
(in thousands) Nine Months Ended Nine Months Ended Nine Months Ended
  September 30, September 30, September 30,
  2017   2016   2017   2016   2017   2016
Net sales $ 2,246,446     $ 2,116,393     $ 31,559     $ 9,175     $ 2,278,005     $ 2,125,568  
                       
Gross profit 650,419     610,454     9,472     2,856     659,891     613,310  
Gross margin 29.0 %   28.8 %   30.0 %   31.1 %   29.0 %   28.9 %
                       
Operating expenses 383,636     365,287     9,143     1,907     392,779     367,194  
Expenses as a % of net sales 17.1 %   17.3 %   29.0 %   20.8 %   17.2 %   17.3 %
                       
Operating income 266,783     245,167     329     949     267,112     246,116  
Operating margin 11.9 %   11.6 %   1.0 %   10.3 %   11.7 %   11.6 %

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

 

Acquired
   
Acquisition
Date
  Net
Sales Centers
Acquired
  Periods
Excluded
New Star Holdings Pty Ltd   July 2017   1   July - September 2017
Lincoln Aquatics (1)   April 2017   2   May - September 2017
Metro Irrigation Supply Company Ltd. (1)   April 2016   8   January - June 2017 and
April - June 2016
The Melton Corporation (1)   November 2015   2   January 2017 and January 2016
Seaboard Industries, Inc. (1)   October 2015   3   January 2017 and January 2016

(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 nine months of 2017.

December 31, 2016 344    
Acquired locations 3    
New location 1    
Closed locations (2 )  
September 30, 2017 346  

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     Nine Months Ended  
(In thousands)   September 30,     September 30,  
      2017     2016     2017     2016    
Net income $ 48,783     $ 44,421     $ 165,674     $ 146,031      
  Add:                          
  Interest and other non-operating expenses (1)   4,009       2,989       11,608       9,954      
  Provision for income taxes   29,179       26,807       89,951       90,244      
  Share-based compensation   3,197       2,523       9,496       7,373      
  Goodwill impairment         613             613      
  Equity earnings in unconsolidated investments   (43 )     (51 )     (121 )     (113 )    
  Depreciation   6,330       5,277       17,947       15,020      
  Amortization (2)   253       418       724       796      
Adjusted EBITDA $ 91,708     $ 82,997     $ 295,279     $ 269,918      

(1)  Shown net of interest income and includes amortization of deferred financing costs as discussed below.
(2)  Excludes amortization of deferred financing costs of $136 and $135 for the three months ended September 30, 2017 and September 30, 2016, respectively and $408 and $492 for the nine months ended September 30, 2017 and September 30, 2016, respectively.

The table below presents a reconciliation of Adjusted EBITDA to net cash provided by operating activities.  Please see page 6 for our Condensed Consolidated Statements of Cash Flows.

(Unaudited)   Three Months Ended     Nine Months Ended  
(In thousands)   September 30,     September 30,  
      2017     2016     2017     2016    
Adjusted EBITDA $ 91,708     $ 82,997     $ 295,279     $ 269,918      
  Add:                          
  Interest and other non-operating expenses, net of interest income   (3,873 )     (2,854 )     (11,200 )     (9,462 )    
  Provision for income taxes   (29,179 )     (26,807 )     (89,951 )     (90,244 )    
  Excess tax benefits from share-based compensation         (3,379 )           (6,582 )    
  Other   (1,048 )     916       1,074       3,186      
  Change in operating assets and liabilities   95,758       106,054       (83,182 )     (23,646 )    
Net cash provided by operating activities $ 153,366     $ 156,927     $ 112,020     $ 143,170      

 

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