Pool Corporation Reports Record First Quarter Results
Highlights
- Net sales growth of 2% for Q1 2019, with 1% growth in base business sales
- Gross margin growth of 90 basis points and operating income growth of 14%
- Q1 2019 diluted EPS increase of 7% to $0.80 or an increase of 11% to $0.59, excluding tax benefits
- Updates 2019 earnings guidance range to $6.09 - $6.39 per diluted share from previous $6.05 - $6.35 range
COVINGTON, La., April 18, 2019 (GLOBE NEWSWIRE) -- Pool Corporation (NASDAQ/GSM: POOL) today reported record results for the first quarter of 2019.
“I am pleased to report a solid first quarter of 2019 despite wetter and cooler conditions throughout most of the quarter in some of our major markets. Our team’s strong execution, coupled with modest top line growth, delivered favorable results in the quarter,” said Peter D. Arvan, President and CEO.
Net sales increased 2% to a record $597.5 million in the first quarter of 2019 compared to $585.9 million in the first quarter of 2018, while base business sales grew 1%. Cooler and wetter weather, particularly in the western US, combined with a later Easter holiday impacted first quarter sales. Pool openings and normal spring early buys from customers in seasonal markets are influenced by the timing of the Easter holiday. In addition, sales were negatively impacted approximately 2% by the loss of a selling day compared to the first quarter of 2018 and 1% from unfavorable currency exchange rates.
Gross profit increased 5% to a record $174.6 million in the first quarter of 2019 from $166.1 million in the same period of 2018. Base business gross profit improved 4% over the first quarter of 2018, including a negative currency exchange impact of 1%. Gross margin increased 90 basis points to 29.2% in the first quarter of 2019 compared to 28.3% in the first quarter of 2018, reflecting benefits from our strategic inventory purchases in 2018 and lower customer early buys.
Selling and administrative expenses (operating expenses) increased 3% to $136.2 million in the first quarter of 2019 compared to the first quarter of 2018. Base business operating expenses were up 1% over the comparable 2018 period including a 1% currency benefit. As a percentage of net sales, base business operating expenses increased to 22.6% in the first quarter of 2019 compared to 22.5% in the first quarter of 2018.
Operating income for the first quarter of 2019 increased to a record $38.4 million, up 14% compared to the same period in 2018. Operating margin was 6.4% in the first quarter of 2019 and 5.7% in the same period in 2018, while base business operating margin improved 90 basis points from the prior year to 6.7% in the first quarter of 2019.
We recorded an $8.8 million tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, in the quarter ended March 31, 2019 compared to a tax benefit of $9.0 million realized in the same period of 2018.
Net income was $32.6 million in the first quarter of 2019 compared to $31.3 million in the first quarter of 2018. Earnings per share increased 7% to a record $0.80 per diluted share in the three months ended March 31, 2019 compared to $0.75 per diluted share in the same period of 2018. The benefit from ASU 2016-09 increased diluted earnings per share by $0.21 and $0.22 in the first quarters of 2019 and 2018, respectively. Excluding the impact from ASU 2016-09 in both periods, earnings per diluted share increased 11% to $0.59 in the first quarter of 2019 compared to $0.53 in the first quarter of 2018.
On the balance sheet at March 31, 2019, total net receivables, including pledged receivables, remained flat, while inventory levels grew 16% compared to March 31, 2018. The growth in inventory reflects strategic inventory purchases made in the second half of 2018 in advance of greater than normal vendor price increases, inventory from acquired businesses of $18.8 million and normal business growth as well as the slower start to the season. Total debt outstanding was $699.0 million at March 31, 2019, a $130.9 million increase from total debt at March 31, 2018.
Cash provided by operations was $28.8 million in the first three months of 2019 compared to $44.1 million used in operations in the first three months of 2018, an improvement of $72.9 million. The increase in cash provided by operations primarily relates to payments for pre-price increase inventory purchases in 2018 ahead of the 2019 season. Adjusted EBITDA (as defined in the addendum to this release) was $48.6 million and $43.4 million in the first quarters of 2019 and 2018, respectively. Interest expense increased compared to last year primarily due to higher debt levels and higher interest rates.
“As a result of the additional tax benefits realized from ASU 2016-09 in the first quarter, we are updating our earnings guidance to a range of $6.09 to $6.39 from $6.05 to $6.35 per diluted share. Other than the additional $0.04 per diluted share tax benefit, our earnings expectation for 2019 remains unchanged. Looking forward to the second quarter, we’re excited about the many opportunities to continue to provide exceptional service to our customers as we head into the heart of the swimming pool season,” said Arvan.
POOLCORP is the world’s largest wholesale distributor of swimming pool and related backyard products. As of March 31, 2019, POOLCORP operates 369 sales centers in North America, Europe, South America and Australia, through which it distributes more than 180,000 national brand and private label products to roughly 120,000 wholesale customers. For more information, please visit www.poolcorp.com.
This news release includes “forward-looking” statements that involve risks and uncertainties that are generally identifiable through the use of words such as “believe,” “expect,” “intend,” “plan,” “estimate,” “project,” “should” and similar expressions and include projections of earnings. The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date of this release, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. Actual results may differ materially due to a variety of factors, including the sensitivity of our business to weather conditions, changes in the economy and the housing market, our ability to maintain favorable relationships with suppliers and manufacturers, competition from other leisure product alternatives and mass merchants, excess tax benefits or deficiencies recognized under ASU 2016-09 and other risks detailed in POOLCORP’s 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) as updated by POOLCORP’s subsequent filings with the SEC.
CONTACT:Curtis J. ScheelDirector of Investor Relations985.801.5341[email protected]
POOL CORPORATIONConsolidated Statements of Income(Unaudited)(In thousands, except per share data)
| Three Months EndedMarch 31, | |||||||||||||
| 2019 | 2018 | ||||||||||||
| Net sales | 597,456 | $ | 585,900 | ||||||||||
| Cost of sales | 422,825 | 419,827 | |||||||||||
| Gross profit | 174,631 | 166,073 | |||||||||||
| Percent | 29.2 | % | 28.3 | % | |||||||||
| Selling and administrative expenses | 136,245 | 132,532 | |||||||||||
| Operating income | 38,386 | 33,541 | |||||||||||
| Percent | 6.4 | % | 5.7 | % | |||||||||
| Interest and other non-operating expenses, net | 6,616 | 3,527 | |||||||||||
| Income before income taxes and equity earnings | 31,770 | 30,014 | |||||||||||
| Income tax benefit | (802 | ) | (1,279 | ) | |||||||||
| Equity earnings in unconsolidated investments, net | 65 | 46 | |||||||||||
| Net income | $ | 32,637 | $ | 31,339 | |||||||||
| Earnings per share: | |||||||||||||
| Basic | $ | 0.83 | $ | 0.78 | |||||||||
| Diluted | $ | 0.80 | $ | 0.75 | |||||||||
| Weighted average shares outstanding: | |||||||||||||
| Basic | 39,479 | 40,370 | |||||||||||
| Diluted | 40,696 | 41,862 | |||||||||||
| Cash dividends declared per common share | $ | 0.45 | $ | 0.37 | |||||||||
POOL CORPORATIONCondensed Consolidated Balance Sheets(Unaudited)(In thousands)
| March 31, | March 31, | Change | |||||||||||||||||||||
| 2019 | 2018 | $ | % | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Current assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 28,581 | $ | 8,803 | $ | 19,778 | 225 | % | |||||||||||||||
| Receivables, net (1) | 72,352 | 75,889 | (3,537 | ) | (5 | ) | |||||||||||||||||
| Receivables pledged under receivables facility | 240,775 | 238,707 | 2,068 | 1 | |||||||||||||||||||
| Product inventories, net (2) | 815,742 | 703,793 | 111,949 | 16 | |||||||||||||||||||
| Prepaid expenses and other current assets (5) | 16,116 | 23,714 | (7,598 | ) | (32 | ) | |||||||||||||||||
| Total current assets | 1,173,566 | 1,050,906 | 122,660 | 12 | |||||||||||||||||||
| Property and equipment, net | 107,690 | 109,310 | (1,620 | ) | (1 | ) | |||||||||||||||||
| Goodwill | 188,478 | 189,759 | (1,281 | ) | (1 | ) | |||||||||||||||||
| Other intangible assets, net | 11,744 | 12,926 | (1,182 | ) | (9 | ) | |||||||||||||||||
| Equity interest investments | 1,200 | 1,150 | 50 | 4 | |||||||||||||||||||
| Operating lease assets (3),(4),(5) | 177,293 | — | 177,293 | 100 | |||||||||||||||||||
| Other assets | 18,379 | 15,615 | 2,764 | 18 | |||||||||||||||||||
| Total assets | $ | 1,678,350 | $ | 1,379,666 | $ | 298,684 | 22 | % | |||||||||||||||
| Liabilities and stockholders’ equity | |||||||||||||||||||||||
| Current liabilities: | |||||||||||||||||||||||
| Accounts payable (4) | $ | 472,487 | $ | 467,795 | $ | 4,692 | 1 | % | |||||||||||||||
| Accrued expenses and other current liabilities | 47,658 | 45,504 | 2,154 | 5 | |||||||||||||||||||
| Short-term borrowings and current portion of long-term debt | 21,734 | 20,786 | 948 | 5 | |||||||||||||||||||
| Current operating lease liabilities (3) | 55,744 | — | 55,744 | 100 | |||||||||||||||||||
| Total current liabilities | 597,623 | 534,085 | 63,538 | 12 | |||||||||||||||||||
| Deferred income taxes | 29,368 | 24,947 | 4,421 | 18 | |||||||||||||||||||
| Long-term debt, net | 677,243 | 547,324 | 129,919 | 24 | |||||||||||||||||||
| Other long-term liabilities | 26,469 | 23,525 | 2,944 | 13 | |||||||||||||||||||
| Non-current operating lease liabilities (3) | 122,770 | — | 122,770 | 100 | |||||||||||||||||||
| Total liabilities | 1,453,473 | 1,129,881 | 323,592 | 29 | |||||||||||||||||||
| Total stockholders’ equity | 224,877 | 249,785 | (24,908 | ) | (10 | ) | |||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,678,350 | $ | 1,379,666 | $ | 298,684 | 22 | % | |||||||||||||||
| (1) | The allowance for doubtful accounts was $5.6 million at March 31, 2019 and $4.0 million at March 31, 2018. |
| (2) | The inventory reserve was $8.5 million at March 31, 2019 and $7.4 million at March 31, 2018. |
| (3) | We adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019. Upon adoption, we recorded operating lease assets and operating lease liabilities based on the present value of future lease obligations. We applied the practical expedient available in this guidance, which does not require the restatement of prior year balances. |
| (4) | Due to ASU 2016-02, our straight-line rent liability of $5.1 million, reported in Accounts payable under previous accounting guidance, offsets our Operating lease assets as of March 31, 2019. |
| (5) | As of March 31, 2019, we presented pre-paid rent of $4.7 million in Operating lease assets as required under the new guidance (presented in Prepaid expenses and other current assets as of March 31, 2018). |
POOL CORPORATIONCondensed Consolidated Statements of Cash Flows(Unaudited)(In thousands)
| Three Months Ended | ||||||||||||||||||||
| March 31, | ||||||||||||||||||||
| 2019 | 2018 | Change | ||||||||||||||||||
| Operating activities | ||||||||||||||||||||
| Net income | $ | 32,637 | $ | 31,339 | $ | 1,298 | ||||||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||||||||||||||||||
| Depreciation | 6,649 | 6,299 | 350 | |||||||||||||||||
| Amortization | 375 | 470 | (95 | ) | ||||||||||||||||
| Share-based compensation | 3,259 | 3,321 | (62 | ) | ||||||||||||||||
| Equity earnings in unconsolidated investments, net | (65 | ) | (46 | ) | (19 | ) | ||||||||||||||
| Other | 512 | 681 | (169 | ) | ||||||||||||||||
| Changes in operating assets and liabilities, net of effects of acquisitions: | ||||||||||||||||||||
| Receivables | (103,122 | ) | (117,377 | ) | 14,255 | |||||||||||||||
| Product inventories | (128,206 | ) | (168,518 | ) | 40,312 | |||||||||||||||
| Prepaid expenses and other assets | (1,427 | ) | (3,843 | ) | 2,416 | |||||||||||||||
| Accounts payable | 230,030 | 222,285 | 7,745 | |||||||||||||||||
| Accrued expenses and other current liabilities | (11,838 | ) | (18,760 | ) | 6,922 | |||||||||||||||
| Net cash provided by (used in) operating activities | 28,804 | (44,149 | ) | 72,953 | ||||||||||||||||
| Investing activities | ||||||||||||||||||||
| Acquisition of businesses, net of cash acquired | (9,370 | ) | (578 | ) | (8,792 | ) | ||||||||||||||
| Purchases of property and equipment, net of sale proceeds | (6,739 | ) | (14,639 | ) | 7,900 | |||||||||||||||
| Net cash used in investing activities | (16,109 | ) | (15,217 | ) | (892 | ) | ||||||||||||||
| Financing activities | ||||||||||||||||||||
| Proceeds from revolving line of credit | 206,190 | 148,335 | 57,855 | |||||||||||||||||
| Payments on revolving line of credit | (253,249 | ) | (170,012 | ) | (83,237 | ) | ||||||||||||||
| Proceeds from asset-backed financing | 80,100 | 80,000 | 100 | |||||||||||||||||
| Payments on asset-backed financing | (13,500 | ) | (20,000 | ) | 6,500 | |||||||||||||||
| Proceeds from short-term borrowings and current portion of long-term debt | 13,713 | 10,798 | 2,915 | |||||||||||||||||
| Payments on short-term borrowings and current portion of long-term debt | (1,148 | ) | (848 | ) | (300 | ) | ||||||||||||||
| Payments of deferred financing costs | — | (8 | ) | 8 | ||||||||||||||||
| Payments of deferred and contingent acquisition consideration | (311 | ) | (265 | ) | (46 | ) | ||||||||||||||
| Proceeds from stock issued under share-based compensation plans | 7,071 | 7,808 | (737 | ) | ||||||||||||||||
| Payments of cash dividends | (17,819 | ) | (15,011 | ) | (2,808 | ) | ||||||||||||||
| Purchases of treasury stock | (23,097 | ) | (2,592 | ) | (20,505 | ) | ||||||||||||||
| Net cash (used in) provided by financing activities | (2,050 | ) | 38,205 | (40,255 | ) | |||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 1,578 | 24 | 1,554 | |||||||||||||||||
| Change in cash and cash equivalents | 12,223 | (21,137 | ) | 33,360 | ||||||||||||||||
| Cash and cash equivalents at beginning of period | 16,358 | 29,940 | (13,582 | ) | ||||||||||||||||
| Cash and cash equivalents at end of period | $ | 28,581 | $ | 8,803 | $ | 19,778 | ||||||||||||||
ADDENDUM
Base Business
The following table breaks out our consolidated results into the base business component and the excluded component (sales centers excluded from base business):
| (Unaudited) | Base Business | Excluded | Total | ||||||||||||||||||||
| (in thousands) | Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||
| March 31, | March 31, | March 31, | |||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| Net sales | $ | 587,320 | $ | 582,822 | $ | 10,136 | $ | 3,078 | $ | 597,456 | $ | 585,900 | |||||||||||
| Gross profit | 171,706 | 165,334 | 2,925 | 739 | 174,631 | 166,073 | |||||||||||||||||
| Gross margin | 29.2 | % | 28.4 | % | 28.9 | % | 24.0 | % | 29.2 | % | 28.3 | % | |||||||||||
| Operating expenses | 132,548 | 131,250 | 3,697 | 1,282 | 136,245 | 132,532 | |||||||||||||||||
| Expenses as a % of net sales | 22.6 | % | 22.5 | % | 36.5 | % | 41.7 | % | 22.8 | % | 22.6 | % | |||||||||||
| Operating income (loss) | 39,158 | 34,084 | (772 | ) | (543 | ) | 38,386 | 33,541 | |||||||||||||||
| Operating margin | 6.7 | % | 5.8 | % | (7.6 | )% | (17.6 | )% | 6.4 | % | 5.7 | % | |||||||||||
We have excluded the following acquisitions from base business for the periods identified:
| Acquired | AcquisitionDate | NetSales CentersAcquired | PeriodsExcluded | |||
| W.W. Adcock, Inc. (1) | January 2019 | 4 | January - March 2019 | |||
| Turf & Garden, Inc. (1) | November 2018 | 4 | January - March 2019 | |||
| Tore Pty. Ltd. (Pool Power) (1) | January 2018 | 1 | January - March 2019 andJanuary - March 2018 | |||
| Chem Quip, Inc. (1) | December 2017 | 5 | January - March 2019 and January - March 2018 | |||
| Intermark | December 2017 | 1 | January - February 2019 and January - February 2018 |
(1) We acquired certain distribution assets of each of these companies.
When calculating our base business results, we exclude sales centers that are acquired, closed or opened in new markets for a period of 15 months. We also exclude consolidated sales centers when we do not expect to maintain the majority of the existing business and existing sales centers that are consolidated with acquired sales centers.
We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales. After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.
The table below summarizes the changes in our sales center count in the first three months of 2019.
| December 31, 2018 | 364 | |
| Acquired locations | 4 | |
| New locations | 2 | |
| Consolidated location | (1 | ) |
| March 31, 2019 | 369 |
Adjusted EBITDA
We define Adjusted EBITDA as net income or net loss plus interest and other non-operating expenses, income taxes, depreciation, amortization, share‑based compensation, goodwill and other non-cash impairments and equity earnings or loss in unconsolidated investments. Adjusted EBITDA is not a measure of cash flow or liquidity as determined by generally accepted accounting principles (GAAP). We have included Adjusted EBITDA as a supplemental disclosure because we believe that it is widely used by our investors, industry analysts and others as a useful supplemental liquidity measure in conjunction with cash flows provided by or used in operating activities to help investors understand our ability to provide cash flows to fund growth, service debt and pay dividends as well as compare our cash flow generating capacity from year to year.
We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, cash flows provided by or used in operating, investing and financing activities or other income statement or cash flow statement line items reported in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.
The table below presents a reconciliation of net income to Adjusted EBITDA.
| (Unaudited) | Three Months Ended | ||||||||||||||
| (in thousands) | March 31, | ||||||||||||||
| 2019 | 2018 | ||||||||||||||
| Net income | $ | 32,637 | $ | 31,339 | |||||||||||
| Add: | |||||||||||||||
| Interest and other non-operating expenses (1) | 6,616 | 3,527 | |||||||||||||
| Income tax benefit | (802 | ) | (1,279 | ) | |||||||||||
| Share-based compensation | 3,259 | 3,321 | |||||||||||||
| Equity earnings in unconsolidated investments | (65 | ) | (46 | ) | |||||||||||
| Depreciation | 6,649 | 6,299 | |||||||||||||
| Amortization (2) | 267 | 276 | |||||||||||||
| Adjusted EBITDA | $ | 48,561 | $ | 43,437 | |||||||||||
| (1) | Shown net of interest income and includes amortization of deferred financing costs as discussed below. |
| (2) | Excludes amortization of deferred financing costs of $108 and $194 for the three months ended March 31, 2019 and March 31, 2018, respectively. |
The table below presents a reconciliation of Adjusted EBITDA to net cash provided by (used in) operating activities. Please see page 5 for our Condensed Consolidated Statements of Cash Flows.
| (Unaudited) | Three Months Ended | ||||||||||||||
| (in thousands) | March 31, | ||||||||||||||
| 2019 | 2018 | ||||||||||||||
| Adjusted EBITDA | $ | 48,561 | $ | 43,437 | |||||||||||
| Add: | |||||||||||||||
| Interest and other non-operating expenses, net of interest income | (6,508 | ) | (3,333 | ) | |||||||||||
| Income tax benefit | 802 | 1,279 | |||||||||||||
| Other | 512 | 681 | |||||||||||||
| Change in operating assets and liabilities | (14,563 | ) | (86,213 | ) | |||||||||||
| Net cash provided by (used in) operating activities | $ | 28,804 | $ | (44,149 | ) | ||||||||||
