Q3 2024 Earnings Summary
- 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.
- 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.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -3% | Slower discretionary spending and continued normalization from prior-year pandemic-driven highs led to a reduced demand for new construction and remodeling, slightly offset by steady maintenance-related sales. |
Equipment | +1% | Small gains from incremental price increases and stable maintenance activity offset weak demand in new projects; equipment upgrades and replacements remained moderately resilient in spite of softer market conditions. |
Building Materials | -11% | Reduced new pool builds and remodeling projects were major headwinds, as consumer hesitancy for larger discretionary outlays continued, especially compared to stronger prior-period construction activity. |
Commercial Sales | +21% | Higher leisure and travel demand drove increased commercial pool usage and refurbishments, significantly boosting sales in this segment over a comparatively weaker base in the prior year. |
Retail Sales | -3% | Weather variability in key markets and soft consumer demand for high-ticket items constrained retail products, while stable maintenance-driven categories partially offset the decline. |
Operating Income (EBIT) | -9% | Lower overall sales and slight gross margin pressure from a less favorable product mix increased cost ratios; some cost inflation further constrained margins compared to last year’s levels. |
Net Income | -9% | Declining sales volumes in higher-margin segments combined with increased operating expenses led to reduced profitability relative to the prior period, despite ongoing cost controls. |
Diluted EPS | -7% | Downward pressure from weaker net income, despite share repurchases, caused EPS to soften compared to last year, reflecting overall market headwinds and soft consumer spending. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Diluted EPS | FY 2024 | $11.05 – $11.45 | $11.06 – $11.46 | raised |
Operating Expenses | FY 2024 | Increase by a low to mid single-digit % | Increase of 4% – 5% | no change |
Interest Expense | FY 2024 | $50 million | $50 million | no change |
Tax Rate | FY 2024 | 25% | 25% | no change |
Weighted Average Shares | FY 2024 | 38.6 million shares | 38.5 million shares | lowered |
Gross Margin | FY 2024 | 30% | 30% | no change |
Sales (Full-Year YoY) | FY 2024 | Negative 4% – 5% from new builds & renovation, plus additional 1% decline from Horizon & Europe | No current guidance | no current guidance |
New Pool Construction (Full-Year) | FY 2024 | No prior guidance | 20% decline | no prior guidance |
Cash Flow | FY 2024 | Operating cash flows expected to meet or slightly exceed 100% of net income | No current guidance | no current guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue YoY Growth | Q3 2024 | Expected to decline ~5% to 6% YoY | Q3 2024 revenue: 1,432.88 millionVs. Q3 2023 revenue: 1,474.55 million→ YoY change of -2.83% | Beat |
Gross Margin | Q3 2024 | Full-year ~30% with no significant quarter-over-quarter changes in 2H | (1,432.88 - 1,016.48) / 1,432.88 = 29.06% | Met |
Tax Rate | Q3 2024 | Annual ~25%, with a lower rate anticipated in Q3 | ~23.3% (implied by Net Income = 125.71Vs. EBT ≈ 163.99) | Met |
Operating Expenses YoY | Q3 2024 | Low to mid-single-digit percentage increase year-over-year | SG&A up from 234.05 million in Q3 2023To 240.05 million in Q3 2024→ ~2.56% increase (low single digit) | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
New pool construction slowdown and its impact on revenue | Q2 2024: Construction down 15% to 20%, reducing total sales by about 3%. Q1 2024: Similar 15-20% decline in new construction, contributing to a 3% dip in consolidated sales. Q4 2023: New pool construction 15% of business, estimated 70,000-75,000 new pools (down 25-30%). | Negatively impacted total sales by 5%; new pools expected to decline closer to 20%, with approximately 55,000 to 60,000 total pools for 2024. Florida remains weak due to storm damage not offsetting declines. | Remains a consistent headwind, with prolonged softness in lower- to mid-tier demand. |
Ongoing margin pressure from competitive pricing and product mix | Q2 2024: Pricing headwinds persisted, though some unsustainable deals eased. Q1 2024: Preseason pricing pressure and higher mix of lower-margin equipment. Q4 2023: Competitors resorted to "desperate" pricing in slower demand periods but POOL emphasized value over price. | Competitive pricing from larger customers and reduced higher-margin building materials pressured gross margins, partly offset by private label initiatives. | Continues as a recurring challenge, mitigated by internal margin initiatives. |
Interest rates influencing consumer demand and construction recovery | Q2 2024: Consumers awaited better economic conditions, with even high-end projects somewhat affected. Q1 2024: Elevated rates weighed on pool starts and permits. Q4 2023: Company saw $80,000 average pool cost limiting budget-conscious buyers. They viewed modest rate cuts as insufficient for a major turnaround. | Persistently high rates keep lower- to mid-tier consumers cautious. A return to normal levels of new construction is seen as unlikely without further rate cuts, affecting both housing and pool demand. | Key macro factor stalling new build recovery until rates ease more significantly. |
Maintenance and repair spending offsetting softer new builds | Q2 2024: Maintenance remained strong, with equipment sales for upkeep stable. Q1 2024: Maintenance volumes held up and offset declines in construction. Q4 2023: Maintenance rose to 62% of total sales, reflecting its resilient nature compared to discretionary new builds. | Steady maintenance and repair activity, especially in Florida after storms, helped offset revenue pressures, although still weaker than normal seasonality in Q4. | Consistent support for revenues amid lower new construction. |
Seasonality and weather affecting quarterly sales patterns | Q2 2024: Hot weather in late June boosted maintenance; wet conditions in Texas slowed construction. Q1 2024: Poor weather in Florida and improvement in California impacted sales; March weather was critical. Q4 2023: Return to pre-COVID seasonality patterns expected in 2024, with first-quarter sales typically 18-20% of annual total. | Hurricanes in Q3 2024 caused short-term disruptions but drove added repair demand. Collectively, seasonal slowdowns in late Q3 and Q4 remain typical. | Normal seasonality resumed, with storms causing localized boosts in maintenance demand. |
Long-term growth algorithm affirmations and share gains | Q2 2024: Affirmed similar trajectory, focusing on resumption once new construction rebounds. Q1 2024: Emphasized stickiness of share gains and 1% annual contribution from share capture. Q4 2023: Maintained confidence in ability to grow share, highlighting scale advantage and technology investments. | Reiterated 6% to 9% long-term growth target, driven by 1-2% inflation, installed base, and new pools, plus 2-3% share gains. Acquisition contribution may be limited by scale. | Steady confidence in long-term model, with share gains as a key lever. |
POOL360 ecosystem no longer cited as a growth driver | Q2 2024: Remained a key differentiator, with adoption at 14.5% of sales. Q1 2024: Orders processed through POOL360 reached 11%, reinforcing efficiency gains. Q4 2023: Continued focus on POOL360 tools, driving 3% increase in orders processed compared to prior year. | Still cited as a growth driver, with a 14.5% increase in orders via POOL360 and ongoing rollout of water test and service software. | Remains a strategic priority, contrary to the idea it was no longer a driver. |
Emergence of commercial sales strength | Q2 2024: Commercial sales up 16% after a flat Q1. Q1 2024: Commercial segment was flat but outperformed broader business. Q4 2023: Commercial segment grew 9% for the full year, on top of 27% growth in the prior year, supported by acquisitions and expanded commercial offerings. | Commercial sales grew 7% in Q3 2024, decelerating from 16% in Q2, attributed to timing of large projects but still seen as a positive contributor. | Remains an opportunity, though growth rate fluctuates with large project timing. |
Shifts in sentiment around new construction from cautious optimism to prolonged concern | Q2 2024: Emphasis on consumers waiting for more favorable conditions. Q1 2024: Caution remained but with some optimism about permits. Q4 2023: "Optimistic but cautious" view, noting interest rates as a constraint and new pool construction 15% of business. | Cautious interest persists, but economic uncertainty has prolonged concern, especially for lower-tier buyers. Likely needing more rate cuts and housing recovery. | Prolonged caution, with clear signals that normal demand needs looser monetary policy. |
Potential large impact from interest rate changes on new build activity and margins | Q2 2024: Interest rates viewed as a key catalyst but not directly linked to margin improvement. Q1 2024: Elevated rates weighed on new starts; margin impact driven mostly by competitive pricing. Q4 2023: Interest rates raised pool costs to $80,000, restricting volumes; meaningful margin expansion would require higher volumes. | High rates dampen new construction, limiting margin expansion. Further rate cuts seen as pivotal for recovery. | Critical macro lever affecting both volume and gross margins. |
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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 ( ). -
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 ( ). -
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% ( , ). -
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 ( ). -
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 ( ). -
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 ( ). -
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 ( ). -
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 ( ). -
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 ( ). -
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 ( ). -
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 ( ). -
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 ( ). -
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 ( ). -
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 ( ). -
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 ( ).
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