It has been about a month since the last earnings report for Pool Corp. (POOL). Shares have lost about 2.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Pool Corp. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Pool Q3 Earnings & Revenues Beat Estimates
Pool reported better-than-expected third-quarter 2019 results. The bottom line beat the Zacks Consensus Estimate for the second straight quarter and the top line beat the same after missing in the preceding two quarters.
Adjusted earnings of $1.84 per share in the quarter topped the Zacks Consensus Estimate of $1.77 and increased 16% from the year-ago quarter’s tally. Quarterly net revenues totaled $898.5 million, which surpassed the consensus mark of $887 million and improved 11% year over year. Additionally, sales increased 1% from an extra selling day in the third quarter of 2019 compared with 2018 tally.
Revenue growth can be primarily attributed to robust performance of the company’s Base business, which registered an increase of 8% year over year. Base business growth was driven by sales growth of 7% each from California, Florida and Arizona and rise of 9% from Texas. The company also witnessed strong demand from France, Germany and Spain.
Let’s discuss the quarterly numbers.
Pool Corp reports operations under two segments — The Base Business segment (constituting majority of the business) and the Excluded segment (sale centers excluded from the base business).
Revenues in the Base Business segment increased 9% year over year to $886.7 million. Also, operating income improved 13% to $104.5 million. Operating margin expanded 40 basis points (bps) from the year-ago quarter’s number.
The Excluded segment delivered net revenues of $11.8 million, up from about $0.30 million registered in the prior-year quarter. The segment reported operating loss of $0.18 million compared with the year-ago quarter’s loss of $0.06 million.
Operating Highlights & Expenses
Cost of sales in the third quarter increased 11.2% from the prior-year quarter’s figures. Gross profit, as a percentage of net sales, declined 30 bps to 28.7% from the year-ago quarter’s figure.
Operating income increased 13% year over year to $104.5 million. Also, the operating margin expanded 20 bps to 11.6% from the prior-year quarter’s level. Selling and administrative expenses too increased 7.5% year over year. Net income totaled $243.6 million, up from $217.6 million recorded in the year-ago quarter.
Adjusted EBITDA increased to $115.5 million in the quarter from $102.5 million in third-quarter 2018.
As of Sep 30 2019, Pool Corp’s cash and cash equivalents amounted to $36.7 million compared with $35.7 million on Sep 30, 2018. Total net receivables, including pledged receivables, rose 6% and inventory levels grew 1% year over year. Its long-term debt amounted to $535.7 million, down 6% from the prior-year quarter’s level. Goodwill fell 0.5% year over year.
In the first nine months of 2019, cash provided by operations increased to $243.3 million in the quarter under review compared with $51.3 million in the prior-year quarter.
For 2019, Pool Corp expects EPS in the range of $6.20-$6.40 compared with prior guidance of $6.09-$6.34. The Zacks Consensus Estimate for current-year earnings is pegged at $6.21.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -15.15% due to these changes.
Currently, Pool Corp. has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Pool Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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