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    Pool Corp (POOL)

    POOL Corporation operates as a distributor of swimming pool supplies, equipment, and related leisure products, as well as irrigation and landscape maintenance products. The company conducts its operations through 439 sales centers across North America, Europe, and Australia, serving a variety of customers including pool builders, retail stores, service companies, and landscape contractors . POOL offers over 200,000 products, including maintenance products like chemicals and pool accessories, repair and replacement parts, building materials, pool equipment, and commercial pool products .

    1. Maintenance and Minor Repair Products - Supplies non-discretionary items essential for the upkeep and minor repairs of pools, including chemicals and pool accessories.
    2. Partially Discretionary Products - Provides products used in remodels and upgrades, catering to customers looking to enhance existing pool facilities.
    3. Discretionary Products - Offers items used in new pool construction, targeting customers involved in building new pool installations.
    4. Pool and Hot Tub Chemicals - Distributes a range of chemicals specifically for maintaining pool and hot tub water quality.
    5. Energy-Efficient and Environmentally Preferred Products - Expands product offerings to include sustainable and energy-saving options for pool maintenance and operation.
    6. Commercial Swimming Pools - Focuses on growth opportunities in the commercial swimming pool sector, providing specialized products for larger-scale installations.
    Initial Price$307.33July 1, 2024
    Final Price$375.61October 1, 2024
    Price Change$68.28
    % Change+22.22%

    What went well

    • POOL's private label products are a key part of their growth strategy, offering higher margins compared to other products. The company is leveraging acquisitions like Pinch A Penny to refresh and expand their private label chemical lines, expecting this to allow them to gain share and enhance profitability.
    • Positive demand trends in key markets like Florida and Arizona indicate that POOL is gaining market share, driven by their investments in customer experience and value proposition. Florida sales grew by 1%, and Arizona sales were flat or positive in the pool business, showing resilience in these markets.
    • POOL360 initiatives are showing early positive feedback, with customers responding well to their software solutions and ecosystem, which is expected to drive long-term growth through increased adoption and enhanced value proposition for customers.

    What went wrong

    • Margins are under pressure due to customer mix and fewer pools being built. The company mentioned that larger customers are winning more jobs, which is putting pressure on margins due to pricing agreements. They expect margins to improve when pool construction returns to normalized levels, but currently, margins are being impacted.
    • Future growth from acquisitions may be limited. The company acknowledged that as a larger business, there aren't many acquisitions available that can contribute the desired 1% growth. This limitation could affect their long-term growth algorithm.
    • Gross margins came in lower than expected, possibly due to pricing competition or product mix. When questioned about the lower gross margin, the company indicated that product mix and pricing dynamics might be affecting margins, maintaining that margins would be similar to last year.

    Q&A Summary

    1. Long-term Growth Algorithm
      Q: Any changes to the 6%-9% long-term growth formula?
      A: Management affirmed the long-term growth algorithm of 6% to 9% revenue growth, driven by 1%-2% inflation, 1%-2% installed base growth, 1%-2% new pools, totaling 4%-6% industry growth, plus 2%-3% share gain ( ). They noted that acquisitions may contribute less due to their size but expect growth from share gains, the installed base growth, new products, and inflation ( ).

    2. New Pool Construction Outlook
      Q: Do rates need to drop for new pool demand to improve?
      A: Management stated that while consumer interest remains high, with phones ringing and people wanting pools, a return to normal new pool construction depends on the housing market loosening up, which requires lower interest rates ( ). They believe that as monetary policy eases and the housing market improves, new pool construction will rebound ( ).

    3. Gross Margin Outlook
      Q: How should we think about gross margins going forward?
      A: Gross margins are guided to be approximately 30% for the full year, with fourth-quarter margins expected to be similar to last year's and up from the third quarter ( ). Management emphasized that despite lower new pool construction impacting margins, they are pleased with performance and see long-term gross margins remaining around 30% ( , ).

    4. Private Label Offering and Margins
      Q: Are there plans to expand the private label offering?
      A: Management highlighted that private label products are a significant part of their strategy, focusing on chemicals and maintenance products but not on equipment ( ). The acquisition of Pinch A Penny has allowed them to refresh their chemical brands, which they believe are as good as or better than competitors, and these products offer margins that are accretive and better than selling other products ( ).

    5. Equipment and Chemical Pricing
      Q: What are equipment and chemical pricing trends for 2025?
      A: Equipment vendors have announced preliminary price increases in the 2%-3% range for 2025, which is expected to flow through the channel as normal ( ). Chemical pricing is stable overall, with no major changes anticipated, and the recent fire in Georgia has no impact on supply ( ).

    6. Inventory Levels and Pre-buy Season
      Q: Are inventory levels satisfactory, and what about pre-buys?
      A: Management is satisfied with current inventory levels, which are down more than sales, reflecting gained efficiency ( ). For the pre-buy season, they plan to participate as usual, with equipment vendor price increases in the 2%-3% range for next year ( ).

    7. Impact of Hurricanes
      Q: How did hurricanes affect the business?
      A: The recent hurricanes in Florida had minimal net impact in the third quarter, as closures were offset by increased activity afterward ( ). In the fourth quarter, they expect an uptick in maintenance and repair demand due to storm damage, though new construction may face headwinds, potentially creating tailwinds in the first quarter of next year ( ).

    8. POOL360 Initiatives
      Q: How are the POOL360 initiatives progressing?
      A: Management reports positive reception of the POOL360 ecosystem, including the water test software and service tools designed to improve dealer efficiency and growth ( ). They are methodically rolling out these tools, with customer feedback being very good ( ).

    9. Competitive Landscape
      Q: Any changes in competitive pressures, specifically from SRS?
      A: Management has not experienced any significant changes in the competitive landscape due to SRS's actions ( ). The industry remains competitive, especially with reduced demand, but they continue to compete on value rather than price ( ).

    10. Technology Spending Plans
      Q: Will technology spending increase in 2025?
      A: Management does not foresee a major change in technology spending for 2025, expecting it to be similar to this year's $20 million investment ( ). They emphasize the need to continue investing to keep their tools current and valuable ( ).

    11. Commercial Business Trends
      Q: What explains the deceleration in commercial growth?
      A: The commercial segment's growth slowed to 7% from 16% in the previous quarter due to timing of large projects and when they invoice ( ). Management advises not to read too much into quarterly variations, emphasizing that commercial is still a small portion of the business ( ).

    12. Retail Business Trends
      Q: Can you discuss trends in the retail segment?
      A: Retail sales are impacted by consumer caution on discretionary items like robotic cleaners, which are expensive ( ). Nondiscretionary items like chemicals are selling well, and they continue to take share, but discretionary purchases are under pressure due to the consumer's financial health ( ).

    13. Q4 Guidance Range
      Q: What could drive results to the low or high end of guidance?
      A: Fourth-quarter fluctuations depend on weather affecting pool usage and the rate of new pool construction, especially in Florida ( ). Headwinds in new construction could skew results to the low end, while a faster recovery and increased repair demand could move them to the high end of the guidance range ( ).

    14. Gross Margin Bridge
      Q: Will supply chain benefits continue to improve margins?
      A: Management expects continued benefits from supply chain efficiencies, private label growth, and pricing initiatives ( ). However, current customer mix pressures margins due to larger customers winning more jobs; as new pool construction normalizes, margins may balance with the return of smaller builders ( ).

    15. Chemical Supply Chain
      Q: How has the chemical supply chain evolved?
      A: The company's chemical supply chain is more diverse now, with their own packaging facility and multiple sources, reducing reliance on any single supplier ( ). The recent chemical plant fire has no impact on them or the industry, and overall chemical pricing is stable ( ).

    NamePositionStart DateShort Bio
    Peter D. ArvanPresident and Chief Executive OfficerJanuary 2019Peter D. Arvan has served as the President and CEO of Pool Corporation since January 2019. He was previously the Executive Vice President and COO. Before joining Pool, he was CEO of Roofing Supply Group .
    Melanie M. HartVice President, Chief Financial Officer, and Treasurer2021Melanie M. Hart has been the Vice President, CFO, and Treasurer since 2021. She joined Pool Corporation in May 2006 and has held various roles, including Chief Accounting Officer. She is a certified public accountant .
    Ilya “Ike” K. MihalyVice President, Operations and Supply ChainMarch 2022Ilya “Ike” K. Mihaly joined Pool Corporation in March 2022. He previously worked as Vice President of Supply Chain for Beacon Roofing Supply and held various roles at General Electric .
    Kristopher R. NeffVice President, Strategy and Corporate DevelopmentJuly 2023Kristopher R. Neff has been Vice President, Strategy and Corporate Development since July 2023. He previously held senior management roles at Brunswick Corporation and worked in the automotive sector .
    Jennifer M. NeilSenior Vice President, Chief Legal Officer, Corporate SecretaryFebruary 2024Jennifer M. Neil has been with Pool Corporation since May 2003. She was promoted to Senior Vice President in February 2024. She has served as Chief Legal Officer and Corporate Secretary .
    Walker F. SaikChief Accounting Officer and Corporate ControllerMarch 2023Walker F. Saik was named Chief Accounting Officer in March 2023. He joined Pool Corporation as the corporate controller in July 2021. He is a certified public accountant and previously worked at Ernst & Young LLP .
    Kenneth G. St. RomainSenior Vice PresidentSeptember 2022Kenneth G. St. Romain has been with Pool Corporation since 1993 and was named Senior Vice President in September 2022. He has held several management positions, including Group Vice President and General Manager .
    Kevin M. MurphyDirectorJune 3, 2024Kevin M. Murphy was appointed as a Director effective June 3, 2024. There are no additional biographical details provided in the documents regarding his background or qualifications .
    1. Given the increasing importance of your private label offerings, especially in chemicals and maintenance products, how do you plan to differentiate these products in the market, and what impact do you expect on your margins in a potentially volatile pricing environment?

    2. With the challenges in the acquisition landscape contributing less to growth than in the past, how do you plan to adjust your long-term growth algorithm, and what other growth drivers will you leverage to achieve your targets over the next five years?

    3. Considering the volatility in chemical pricing over the past few years and recent supply chain disruptions, how are you mitigating risks associated with reliance on key suppliers, and what are your expectations for chemical pricing and margins heading into next year?

    4. Given the current headwinds in new pool construction due to high interest rates and cautious consumer behavior, what specific strategies are you employing to stimulate growth in this segment, and how sensitive is your business to potential shifts in interest rates?

    5. With the slight changes in your inflation and pricing guidance, can you elaborate on the factors leading to the adjustment and how mix and other components are affecting your overall inflation outlook for the year?

    Program DetailsProgram 1
    Approval DateMay 2024
    End Date/DurationNo expiration date
    Total additional amount$316.2 million
    Remaining authorization amount$497.0 million
    DetailsPart of capital allocation strategy, includes increasing cash dividends and ongoing share buyback

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Diluted EPS: $11.06 to $11.46, including a $0.21 estimated benefit from ASU .
      2. Gross Margin: Approximately 30% for the full year .
      3. Sales Trends: Fourth quarter sales expected to align with year-to-date performance; full-year sales under pressure with 15% to 20% fewer new pools built versus 2023 .
      4. Operating Expenses: Increase by 4% to 5% year-over-year .
      5. Interest Expense: Approximately $50 million for the full year .
      6. Tax Rate: Around 25%, excluding ASU benefit .
      7. Share Count: 38.3 million shares for Q4 and 38.5 million shares for the full year .
      8. Inflation Impact: 1% benefit overall, with equipment and other products contributing 2%, offset by chemical pricing .
      9. New Pool Construction and Remodel Activity: Negative impact of approximately 5% collectively for the year .
      10. Horizon and Europe Sales: Lower activity expected to affect total sales by about 1% for the year .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Full Year Diluted EPS: $11.05 to $11.45, including a $0.20 estimated benefit from ASU .
      2. Gross Margin: Approximately 30% for the full year .
      3. Operating Expenses: Low to mid-single-digit percentage increase, with $20 million in technology investments and $12 million for new locations .
      4. Interest Expense: Closer to $50 million for the full year .
      5. Annual Tax Rate: Approximately 25%, excluding ASU benefit .
      6. Fully Diluted Weighted Average Shares Outstanding: Approximately 38.5 million shares for Q3 and Q4, and 38.6 million shares for the full year .
      7. New Pool Construction: Down 15% to 20% compared to the prior year .
      8. Remodel Activity: Down as much as 15% for the full year .
      9. Sales Decline Impact: New pool builds and reduced renovation activity expected to negatively impact sales by 4% to 5%, with Horizon and Europe representing an additional 1% decrease .
      10. Cash Flow: Expected to slightly exceed the target of approximately 100% of net income for the full year .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue: Flat to slightly positive growth for the full year .
      2. Operating Margin: Around 13% for the full year .
      3. Interest Expense: $50 million to $53 million .
      4. Tax Rate: 25.3%, excluding ASU benefit .
      5. Diluted EPS: $13.19 to $14.19, including a $0.19 benefit from ASU .
      6. Gross Margin: Approximately 30% .
      7. Shares Outstanding: Approximately 38.75 million shares .
      8. Capital Allocation: Focus on dividends and share buybacks .
      9. Weather Impact: 1% to 2% annual benefit not observed to date .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Diluted EPS: $13.10 to $14.10, including a $0.10 benefit from ASU .
      2. Sales Growth: Flat to low single-digit increases, with a 2% to 3% pricing benefit and a 1% to 2% benefit from normalized weather .
      3. Gross Margin: Near 30% .
      4. Operating Margin: Approximately 13% .
      5. Interest Expense: $50 million to $53 million .
      6. Tax Rate: 25.3%, excluding ASU .
      7. Weighted Average Shares Outstanding: 38.7 million shares at the end of Q1 and 38.8 million shares for the remaining quarters .
      8. Capital Allocation: Cash for organic growth, acquisitions, dividends, and share buybacks .
      9. Operating Expenses: $15 million for compensation, $12 million for new locations, and $20 million for technology .
      10. Cash Flow from Operating Activities: In line with net income .
      11. Selling Days: Increase of 2 selling days, with less than 1% impact .

    Competitors mentioned in the company's latest 10K filing.

    • Pentair plc - One of the largest suppliers, accounting for approximately 19% of the costs of products sold in 2023 .
    • Hayward Pool Products, Inc. - Another major supplier, accounting for approximately 10% of the costs of products sold in 2023 .
    • Zodiac Pool Systems, Inc. - Also a significant supplier, accounting for approximately 10% of the costs of products sold in 2023 .
    • Regional and local distributors - Compete directly for the business of pool owners and other end-use customers .
    • Mass market retailers (store-based and internet) - Compete both directly and indirectly, primarily buying directly from manufacturers .
    • Large pool supply retailers - Compete directly and indirectly, primarily buying directly from manufacturers .
    • National wholesale distributors of irrigation and landscape supplies - Compete in the markets for irrigation and landscape maintenance products .
    • Internet retailers - Compete to a lesser extent, purchasing the majority of their supplies from distributors .
    • Alternative suppliers of big-ticket consumer discretionary products - Compete indirectly, such as boat and motor home distributors .
    • Companies relying on discretionary homeowner expenditures - Compete indirectly, such as home remodelers .

    Recent developments and announcements about POOL.

    Financial Actions

      Debt Issuance

      ·
      Nov 5, 2024, 12:00 AM

      Alert: POOL Corporation's New Financial Obligation

      POOL Corporation has recently created a direct financial obligation by entering into the Joinder and Amendment No. 13 to the Receivables Purchase Agreement. This amendment extends the facility termination date to October 30, 2026, and increases the maximum facility limit to $375.0 million during the months of April through May. The funding capacity ranges from $210.0 million to $350.0 million during the remaining months of the year .

      Potential Effects on Financial Health:

      • Balance Sheet Impact: The increase in the facility limit could enhance liquidity, allowing POOL Corporation to manage its receivables more effectively. However, it also increases the company's financial obligations, which could impact leverage ratios and interest expenses.

      • Financial Health: While the extended facility provides more financial flexibility, it also requires careful management to ensure that the increased debt does not adversely affect the company's financial stability. The company must maintain adequate cash flows to meet these obligations without compromising its financial health.

      This development is significant as it reflects POOL Corporation's strategic financial planning to support its operations and growth initiatives. Stakeholders should monitor how this obligation affects the company's financial metrics and overall performance in the coming quarters.