Q4 2024 Earnings Summary
- Expansion of Private Label Products to Enhance Margins: The company is focusing on expanding its private label products, particularly in the maintenance segment. They expect these initiatives to improve gross margins in 2025, offsetting non-recurring benefits from the prior year. Melanie Hart stated, "We are expecting... an offset from some of that positive benefit that we got in 2024... So for the full year, that was about 20 basis points."
- Higher-End Pools Driving Increased Sales Per Pool: Despite flat new pool construction units, customers building pools are opting for more technologically advanced and feature-rich pools. CEO Peter Arvan noted, "If you have the money to build a pool... you're more than likely to put in the available technology today... you're not going to try and go back to an older platform." This trend could lead to higher sales per pool due to increased content and features.
- Continued Investment in Growth Opportunities and M&A: The company plans to invest between $25 million to $50 million on acquisitions in 2025, signaling ongoing opportunities for consolidation and growth. Peter Arvan stated, "There's some opportunity for continued consolidation..." This continued investment suggests confidence in future growth and potential to expand market share.
- High interest rates and declining pool permits may lead to further declines in new pool construction, particularly in the first half of the year, despite management's expectation of flat units, posing a risk to sales growth.
- The company's return to its long-term growth targets relies on lower interest rates and an improved housing market, which may not occur soon, indicating potential for prolonged lower growth rates than targeted.
- Intensifying competition from private equity-backed firms and market consolidation may erode market share and margins, as larger consolidated customers capture a larger share of the market.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | ↓ 1.5% (from $1,003.05M to $987.48M) | The slight revenue decline reflects lower sales volumes likely driven by weaker consumer spending and reduced pool construction activity, mirroring trends seen in previous periods where macroeconomic pressures impacted discretionary projects. |
Operating Income | ↓ 24% (from $79.35M to $60.65M) | Operating income dropped significantly due to margin compression from reduced sales volumes combined with increased costs, which is consistent with earlier quarters where decreased gross profit and adjusted expenses had a notable impact. |
Net Income | ↓ 27.5% (from $51.44M to $37.30M) | The decline in net income is a result of both lower operating performance and additional cost pressures, echoing previous periods where diminished earnings stemmed from compressed margins and lower sales. |
Depreciation & Amortization (D&A) | ↑ over 340% (from $10.36M to $45.48M) | D&A surged dramatically due to large-scale investments in property and equipment, which increased the asset base significantly. This accelerated depreciation expense reflects the company’s expanded capital intensity compared to the prior year quarter. |
SG&A Expenses | ↑ 7% (from $214.43M to $229.59M) | The 7% increase in SG&A expenses is driven by inflationary pressures, costs related to network expansion, and technology investments. These factors were also noted in previous periods, although the increase in Q4 2024 is slightly higher as the company continues to invest in growth initiatives. |
EPS (Basic and Diluted) | ↓ 28% (from $1.36 to $0.98) | EPS declined sharply as a direct consequence of the fall in net income and the margin pressures seen across the income statement, similar to trends observed in earlier quarters, notwithstanding partial mitigation from share repurchase activities that were insufficient to counterbalance the earnings drop. |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Gross Margin | Q4 2024 | Similar to last year (~29.3%), an increase from Q3 | 29.38% (calculated from Q4 2024 revenue of 987.48M and COGS of 697.24M) | Met |
Gross Margin | FY 2024 | ~30% | 29.67% (sum of Q1–Q4 2024 revenue and COGS:) | Missed |
Operating Expenses (yoy increase) | Q4 2024 | ~5% year-over-year increase | 7.06% increase from 214.43MIn Q4 2023 to 229.59MIn Q4 2024 | Missed |
Interest Expense | FY 2024 | $50 million | $50.25 million (Q1: 13.42, Q2: 14.04, Q3: 12.36, Q4: 10.43) | Met |
Diluted EPS | FY 2024 | $11.06 to $11.46 | $11.28 (Q1: 2.04, Q2: 4.99, Q3: 3.27, Q4: 0.98) | Met |
-
New Construction Outlook
Q: Why is new construction outlook flattish despite high rates?
A: Dealers are reporting good activity, and management expects new construction to be flat, with potential improvement in the second half of the year, even amid high interest rates. They believe the economy will be better in the second half. -
Gross Margin Expectations
Q: How will gross margin be flat to up despite headwinds?
A: The company plans to offset product mix negatives and accounting headwinds through supply chain improvements, increased private label offerings, and continued pricing efforts. -
Path to 6%-9% Growth
Q: What needs to happen to return to 6%-9% growth?
A: Management believes that lower interest rates and a loosening housing market are needed to achieve their long-term growth algorithm of 6%-9% on the top line. Without rate decreases, returning to that growth level will be challenging if new pool construction remains flat at 60,000 units. -
Commodity Pressure Mitigation
Q: How are you addressing commodity pressures on chemicals and PVC?
A: They expect continued pressure but plan to manage by adjusting selling prices slightly below prior levels and anticipating market normalization as the season progresses. PVC piping remains under pressure with no recovery yet. -
Competitive Pressures and Customer Mix
Q: How are you thinking about competitive pressures and customer mix?
A: The industry has seen private equity entering the market, leading to consolidations and growth in national accounts. This allows customers to capture larger market shares, and the company focuses on serving these customers effectively. -
Remodel Demand and Interest Rates
Q: What is the outlook for remodel demand given interest rates?
A: Remodels requiring financing are being delayed due to high rates, but cash customers are proceeding. Management expects that when rates come down, renovation and remodel will become a growth area as pent-up demand is realized. -
Strategic Thoughts on Horizon
Q: What are your strategic thoughts on Horizon's future?
A: Horizon is dependent on new home construction, which is currently underbuilt. The company focuses on the Sunbelt region and doesn't plan significant capital investment in Horizon unless the housing market strengthens, particularly in the Sunbelt. -
Operating Expenses Timing
Q: How should we think about operating expense timing?
A: The company is investing approximately $10 million in new sales centers, with most expenses occurring before the season's start. Incentive compensation is recorded proportionally to operating income throughout the year. -
Florida Rebuild Demand
Q: What's the status of Florida rebuild demand after hurricanes?
A: There is ongoing work needed in Florida, but pools tied to uninhabitable homes will be future projects once homes are rebuilt. This represents future growth as these areas recover. -
Labor Availability in New Construction
Q: How is labor availability affecting new construction?
A: Management is not hearing significant changes in the labor pool from builders. They believe current policies targeting recent migrants haven't materially impacted the labor force needed for pool and home construction. -
Private Label Product Expansion
Q: What impact will new private label products have on gross margin?
A: The focus is on expanding private label products in the maintenance category, expecting benefits to offset previous positive impacts from import taxes that won't recur. They also continue to add to NPT private label products, poised for future benefits. -
POOL360 Initiatives Contribution
Q: How will POOL360 contribute to sales outlook?
A: The company is pleased with POOL360's traction, noting significant increases in private label chemical sales. POOL360 prescribes proprietary chemicals, making customers more efficient and "stickier," driving sales of proprietary products. -
Pinch A Penny and DIY Trends
Q: Are you seeing growth in DIY affecting Pinch A Penny?
A: There hasn't been a significant shift from professional services to DIY despite consumer pressures. Growth in Pinch A Penny depends on providing a great customer experience rather than shifts between DIY and professional services. -
Weather Impact on Comparisons
Q: How are you considering weather impacts for 2025 comps?
A: Weather has significant impacts, especially early in the year with wild swings. While last year's first quarter had good weather, this year is seeing a real winter up north, but the seasonally significant time is later, mitigating the impact. -
Content-Rich Pools and Mix Tailwinds
Q: Is increased content in pools providing a mix tailwind?
A: Yes, customers building pools are likely to include available technology and features, skewing towards larger, feature-laden pools. This content increase benefits the company even if entry-level demand is pressured. -
Commodity Prices and Competitive Offers
Q: How are competitive offers affecting chemical pricing?
A: Competitive offers in the first quarter are typical as companies seek to generate cash. The company exited selling pricing in the first quarter slightly below prior year-end levels but expects normalization as the season progresses.