Louisiana-based Pool Corp.’s (POOL) reported earnings of $1.61 per share missed the Zacks Consensus Estimate by a penny but increased from the year-ago quarter figure of $1.39, driven primarily by higher sales. The swimming pool and lifestyle product maker’s shares were up more than 2% in the trading session on Jul 17, as year-over-year rise in sales improved investors’ confidence.
Net sales in the reported quarter came in at $848.2 million and missed the Zacks Consensus Estimate of $858.0 million. However, sales rose 7.0% year over year due to increase in base business sales. Replacement and remodel activities continued to drive sales growth with sales increases in building materials. However, this was partially offset by prolonged period of inclement weather, particularly in Canada and the northern U.S., which limited the company’s second-quarter sales growth in those markets.
Behind the Headline Numbers
Despite a 7.0% year-over-year increase in cost of sales, gross profit was up 8.0% to $247.0 million due to higher sales. Further, gross margin increased 25 basis points to 29.1%, due to higher sales and the company’s effort to increase margins. Operating income during the quarter was $122.5 million, up 9% from the year-ago quarter. However, selling and administrative expenses increased 7.0% year over year to $124.5 million due to higher base business expenses.
Guidance for 2014
For 2014, the company affirmed its expectation for earnings per share in the range of $2.35–$2.45, representing 15.0–20.0% year-over-year growth, primary reflecting a strong performance in the second half of 2014.
Driven by gradual recovery in consumer discretionary spending since 2010, the company expects sales to increase in the mid-to-high single-digit range in 2014. Gross profit is also expected to increase year over year.
Pool Corp. is well on its path to recovery. Despite the seasonal nature of its business, the company posted improved results driven by the ongoing recovery in discretionary product sales. The revenue beat reflects improving product demand in U.S. swimming pool construction. However, we are concerned about the slowdown in the housing market, which might lower sales in the upcoming quarter.
Pool currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Brunswick Corporation (BC) and Callaway Golf Co. (ELY). Both the stocks carry a Zacks Rank #2 (Buy). In the broader consumer discretionary sector, Red Robin Gourmet Burgers Inc. (RRGB), sporting a Zacks Rank #1 (Strong Buy), is also worth a look.
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