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

Highlights

  • Net sales growth of 7% with base business net sales growth of 5% for the quarter
  • Operating income growth of 13% for the quarter, 17% year to date
  • Q3 2016 diluted EPS increased 14% to $1.03 with year to date diluted EPS up 20% to $3.39
  • Updated 2016 earnings guidance range to $3.40 – $3.46 per diluted share

COVINGTON, La., Oct. 20, 2016 (GLOBE NEWSWIRE) — Pool Corporation (NASDAQ:POOL) today reported record results for the third quarter of 2016 and the nine months ended September 30, 2016.

“We experienced a solid third quarter with results that were slightly better than our expectations.  It is at this time of the year, when our customers are working to get as much as possible done before the season ends, that our service is most critical.  Our results reflect our ability to continually improve execution and provide exceptional service.  The breadth and depth of our product and service offerings, coupled with the commitment of our people, continue to positively distinguish us in the marketplace,” said Manuel Perez de la Mesa, President and CEO.

Net sales for the third quarter of 2016 increased 7% to a record $691.4 million compared to $645.8 million in the third quarter of 2015, with base business sales up 5% for the period.  Our sales continue to benefit from market share gains and stronger consumer discretionary spending evidenced by our increase in sales of pool construction materials and ancillary equipment and supplies, as consumers continue to invest in enhancing their outdoor living spaces.

Gross profit for the third quarter of 2016 increased 8% to a record $199.6 million from $184.3 million in the same period of 2015.  Base business gross profit improved 6% over the third quarter of last year.  Gross profit as a percentage of net sales (gross margin) increased 40 basis points to 28.9% compared to the third quarter of 2015.  This increase reflects gains from supply chain management initiatives this year compared to last. 

Selling and administrative expenses (operating expenses) increased approximately 6% to $125.4 million in the third quarter of 2016 compared to the third quarter of 2015, with base business operating expenses up 3% over the comparable 2015 period.  While the overall increase in operating expenses includes expenses from our recent acquisitions, the increase in base business operating expenses was primarily due to higher growth-driven labor and freight expenses. 

Operating income for the third quarter increased 13% to a record $74.2 million compared to the same period in 2015.  Operating income as a percentage of net sales (operating margin) was 10.7% for the third quarter of 2016 compared to 10.1% in the third quarter of 2015. 

Net income attributable to Pool Corporation increased 13% to a record $44.5 million in the third quarter of 2016 compared to $39.4 million for the third quarter of 2015.  Earnings per share increased to a record $1.03 per diluted share for the three months ended September 30, 2016 versus $0.90 per diluted share for the comparable period in 2015.

Net sales for the nine months ended September 30, 2016 increased 9% to a record $2,125.6 million from $1,948.1 million in the comparable 2015 period, with much of this growth coming from the 7% improvement in base business sales. Gross margin improved approximately 30 basis points to 28.9% in the first nine months of 2016 compared to the same period last year.

Operating expenses increased 6% compared to the first nine months of 2015, with base business operating expenses up 4%.  Operating income for the first nine months of 2016 increased 17% to $246.1 million compared to $210.2 million in the same period last year.

Earnings per share for the first nine months of 2016 increased 20% to a record $3.39 per diluted share on Net income attributable to Pool Corporation of $146.3 million, compared to $2.83 per diluted share on Net income attributable to Pool Corporation of $125.8 million in the comparable 2015 period.

On the balance sheet, total net receivables increased 6% while inventory levels grew 10% compared to September 30, 2015.  Total debt outstanding at September 30, 2016 was $390.2 million, a $3.2 million decrease from total debt at September 30, 2015.

Cash provided by operations was $143.2 million for the first nine months of 2016 compared to $78.0 million for the first nine months of 2015.  The improvement in cash provided by operations is primarily related to our net income growth and the deferral of our third 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 $83.0 million and $72.1 million for the third quarters of 2016 and 2015, respectively, and $269.9 million and $229.6 million for the nine months ended September 30, 2016 and September 30, 2015, respectively.

“As we transition to what is traditionally a slower quarter for us, we are confident that our momentum will continue and we will have a strong finish to 2016.  To that end, we are updating our 2016 earnings guidance to a range of $3.40 to $3.46 per diluted share, from our previous range of $3.30 to 3.45 per diluted share.  Looking ahead to 2017, we are excited to employ the tools, products and resources uniquely available to us to provide exceptional value to our customers,” said Perez de la Mesa.

POOLCORP is the world’s largest wholesale distributor of swimming pool and related backyard products.  Currently, POOLCORP operates 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 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   Nine Months Ended
  September 30,   September 30,
  2016   2015   2016   2015
Net sales $ 691,429     $ 645,779     $ 2,125,568     $ 1,948,064  
Cost of sales 491,878     461,491     1,512,258     1,390,715  
Gross profit 199,551     184,288     613,310     557,349  
Percent 28.9 %   28.5 %   28.9 %   28.6 %
               
Selling and administrative expenses 125,385     118,776     367,194     347,106  
Operating income 74,166     65,512     246,116     210,243  
Percent 10.7 %   10.1 %   11.6 %   10.8 %
               
Interest and other non-operating expenses, net 2,989     2,473     9,954     6,368  
Income before income taxes and equity earnings 71,177     63,039     236,162     203,875  
Provision for income taxes 26,807     23,704     90,244     78,489  
Equity earnings in unconsolidated investments, net     51     68     113     259  
Net income 44,421     39,403     146,031     125,645  
Net loss attributable to noncontrolling interest 113     44     309     144  
Net income attributable to Pool Corporation $ 44,534     $ 39,447     $ 146,340     $ 125,789  
               
Earnings per share:              
Basic $ 1.06     $ 0.92     $ 3.48     $ 2.91  
Diluted $ 1.03     $ 0.90     $ 3.39     $ 2.83  
Weighted average shares outstanding:              
Basic 42,020     42,826     42,092     43,266  
Diluted 43,119     43,939     43,201     44,407  
               
Cash dividends declared per common share $ 0.31     $ 0.26     $ 0.88     $ 0.74  

   
  POOL CORPORATION
  Condensed Consolidated Balance Sheets
  (Unaudited)
  (In thousands)
   
      September 30,     September 30,     Change  
      2016     2015     $   %  
                         
Assets                      
Current assets:                      
  Cash and cash equivalents $ 30,292     $ 29,504     $ 788     3   %
  Receivables, net   81,072       70,399       10,673     15    
  Receivables pledged under receivables facility   152,333       149,375       2,958     2    
  Product inventories, net   455,156       412,587       42,569     10    
  Prepaid expenses and other current assets   12,084       11,062       1,022     9    
  Deferred income taxes   5,288       3,256       2,032     62    
Total current assets   736,225       676,183       60,042     9    
                         
Property and equipment, net   84,643       66,296       18,347     28    
Goodwill   185,486       172,150       13,336     8    
Other intangible assets, net   13,645       11,393       2,252     20    
Equity interest investments   1,152       1,196       (44 )   (4 )  
Other assets   16,370       13,682       2,688     20    
Total assets $ 1,037,521     $ 940,900     $ 96,621     10   %
                         
Liabilities, redeemable noncontrolling interest and stockholders’ equity                      
Current liabilities:                      
  Accounts payable $ 199,922     $ 170,582     $ 29,340     17   %
  Accrued expenses and other current liabilities   126,654       77,298       49,356     64    
  Short-term borrowings and current portion of long-term debt and other long-term liabilities       1,298       1,799       (501 )   (28 )  
Total current liabilities   327,874       249,679       78,195     31    
                         
Deferred income taxes   28,359       22,755       5,604     25    
Long-term debt, net   388,891       391,571       (2,680 )   (1 )  
Other long-term liabilities   17,945       13,216       4,729     36    
Total liabilities   763,069       677,221       85,848     13    
Redeemable noncontrolling interest   2,467       2,457       10        
Total stockholders’ equity   271,985       261,222       10,763     4    
Total liabilities, redeemable noncontrolling interest and stockholders’ equity $ 1,037,521     $ 940,900     $ 96,621     10   %

__________________

  1. The allowance for doubtful accounts was $3.7 million at September 30, 2016 and $3.5 million at September 30, 2015.
  2. The inventory reserve was $8.1 million at September 30, 2016 and $8.3 million at September 30, 2015.
  3. Net financing costs of $1.2 million were included in Long-term debt, net at September 30, 2016 and net financing costs of $1.5 million at September 30, 2015 were reclassed from Other assets to Long-term debt, net upon adoption of ASU 2015-03 in the first quarter of 2016. 
   
POOL CORPORATION  
Condensed Consolidated Statements of Cash Flows  
(Unaudited)  
(In thousands)  
   
    Nine Months Ended        
    September 30,        
    2016     2015     Change  
Operating activities                  
Net income $ 146,031     $ 125,645     $ 20,386    
Adjustments to reconcile net income to cash provided by operating activities:                  
  Depreciation   15,020       11,920       3,100    
  Amortization   1,288       771       517    
  Share-based compensation   7,373       7,112       261    
  Excess tax benefits from share-based compensation   (6,582 )     (4,916 )     (1,666 )  
  Equity earnings in unconsolidated investments, net   (113 )     (259 )     146    
  Other   3,799       2,314       1,485    
Changes in operating assets and liabilities, net of effects of acquisitions:                  
  Receivables   (71,936 )     (78,662 )     6,726    
  Product inventories   23,624       52,463       (28,839 )  
  Prepaid expenses and other assets   (1,094 )     296       (1,390 )  
  Accounts payable   (49,479 )     (66,035 )     16,556    
  Accrued expenses and other current liabilities   75,239       27,334       47,905    
Net cash provided by operating activities   143,170       77,983       65,187    
                   
Investing activities                  
Acquisition of businesses, net of cash acquired   (19,314 )     (602 )     (18,712 )  
Purchases of property and equipment, net of sale proceeds   (30,388 )     (21,299 )     (9,089 )  
Payments to fund credit agreement   (3,852 )     (6,300 )     2,448    
Collections from credit agreement   3,300       4,557       (1,257 )  
Other investments, net   21       75       (54 )  
Net cash used in investing activities   (50,233 )     (23,569 )     (26,664 )  
                   
Financing activities                  
Proceeds from revolving line of credit   873,854       721,835       152,019    
Payments on revolving line of credit   (866,801 )     (690,677 )     (176,124 )  
Proceeds from asset-backed financing   145,000       128,400       16,600    
Payments on asset-backed financing   (90,000 )     (85,800 )     (4,200 )  
Proceeds from short-term borrowings, long-term debt and other long-term liabilities         15,705       4,948       10,757    
Payments on short-term borrowings, long-term debt and other long-term liabilities   (16,107 )     (4,678 )     (11,429 )  
Excess tax benefits from share-based compensation   6,582       4,916       1,666    
Proceeds from stock issued under share-based compensation plans   10,978       10,906       72    
Payments of cash dividends   (37,007 )     (32,008 )     (4,999 )  
Purchases of treasury stock   (117,901 )     (90,306 )     (27,595 )  
Net cash used in financing activities   (75,697 )     (32,464 )     (43,233 )  
Effect of exchange rate changes on cash and cash equivalents   (185 )     (7,276 )     7,091    
Change in cash and cash equivalents   17,055       14,674       2,381    
Cash and cash equivalents at beginning of period   13,237       14,830       (1,593 )  
Cash and cash equivalents at end of period $ 30,292     $ 29,504     $ 788    
 

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,
  2016   2015   2016   2015   2016   2015
Net sales $ 677,198     $ 645,779     $ 14,231     $     $ 691,429     $ 645,779  
                       
Gross profit 195,133     184,288     4,418         199,551     184,288  
Gross margin 28.8 %   28.5 %   31.0 %   %   28.9 %   28.5 %
                       
Operating expenses 122,436     118,776     2,949         125,385     118,776  
Expenses as a % of net sales     18.1 %   18.4 %   20.7 %   %   18.1 %   18.4 %
                       
Operating income 72,697     65,512     1,469         74,166     65,512  
Operating margin 10.7 %   10.1 %   10.3 %   %   10.7 %   10.1 %

           
(Unaudited) Base Business   Excluded   Total
(in thousands) Nine Months Ended   Nine Months Ended   Nine Months Ended
  September 30,   September 30,   September 30,
  2016   2015   2016   2015   2016   2015
Net sales $ 2,089,745     $ 1,947,386     $ 35,823     $ 678     $ 2,125,568     $ 1,948,064  
                       
Gross profit 602,623     557,174     10,687     175     613,310     557,349  
Gross margin 28.8 %   28.6 %   29.8 %   25.8 %   28.9 %   28.6 %
                       
Operating expenses 360,025     346,805     7,169     301     367,194     347,106  
Expenses as a % of net sales     17.2 %   17.8 %   20.0 %   44.4 %   17.3 %   17.8 %
                       
Operating income (loss) 242,598     210,369     3,518     (126 )   246,116     210,243  
Operating margin 11.6 %   10.8 %   9.8 %   (18.6 )%   11.6 %   10.8 %

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 – September 2016
The Melton Corporation   November 2015   2   January – September 2016
Seaboard Industries, Inc.   October 2015   3   January – September 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 nine months of 2016.

December 31, 2015 336    
Acquired locations 8    
New locations 4    
Consolidated locations                           (2 )  
September 30, 2016 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,  
      2016     2015     2016     2015  
Net income $ 44,421     $ 39,403     $ 146,031     $ 125,645    
  Add:                        
  Interest and other non-operating expenses (1)   2,989       2,473       9,954       6,368    
  Provision for income taxes   26,807       23,704       90,244       78,489    
  Share-based compensation   2,523       2,262       7,373       7,112    
  Goodwill impairment   613             613          
  Equity earnings in unconsolidated investments       (51 )     (68 )     (113 )     (259 )  
  Depreciation   5,277       4,233       15,020       11,920    
  Amortization (2)   418       82       796       300    
Adjusted EBITDA $ 82,997     $ 72,089     $ 269,918     $ 229,575    

(1) Shown net of interest income and includes amortization of deferred financing costs as discussed below.
(2) Excludes amortization of deferred financing costs of $135 and $157 for the three months ended September 30, 2016 and September 30, 2015, respectively, and $492 and $471 for the nine months ended September 30, 2016 and September 30, 2015, respectively.

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

             
(Unaudited)   Three Months Ended     Nine Months Ended  
(In thousands)   September 30,     September 30,  
      2016     2015     2016     2015  
Adjusted EBITDA $ 82,997     $ 72,089     $ 269,918     $ 229,575    
  Add:                        
  Interest and other non-operating expenses, net of interest income       (2,854 )     (2,316 )     (9,462 )     (5,897 )  
  Provision for income taxes   (26,807 )     (23,704 )     (90,244 )     (78,489 )  
  Excess tax benefits from share-based compensation   (3,379 )     (348 )     (6,582 )     (4,916 )  
  Other   916       975       3,186       2,314    
  Change in operating assets and liabilities   106,054       87,933       (23,646 )     (64,604 )  
Net cash provided by operating activities $ 156,927     $ 134,629     $ 143,170     $ 77,983    
   

 

CONTACT: CONTACT:
Craig K. Hubbard
985.801.5117
craig.hubbard@poolcorp.com