Pool Corp. (POOL) Down 9.6% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Pool Corp. (POOL). Shares have lost about 9.6% in that time frame, outperforming 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 Q4 Earnings and Revenues Beat Estimates

Pool Corporation reported better-than-expected fourth-quarter 2019 results. Adjusted earnings of 44 cents per share in the quarter topped the Zacks Consensus Estimate of 35 cents and increased 7.3% from the year-ago quarter’s tally. Quarterly net revenues totaled $582.2 million, which surpassed the consensus mark of $572.7 million and increased 7.2% year over year.

Revenue growth can be primarily attributed to robust performance of the company’s Base business, primarily driven by continuous expansion in commercial and building material products along with healthy demand for construction materials and products used in the remodel and replacement of in-ground pools.

Segmental Performance

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 6.9% year over year to $575.8 million. Also, operating income moved up 3.8% to $27.4 million. However, operating margin contracted 10 basis points (bps) from the year-ago quarter’s number to 4.8%.

The Excluded segment delivered net revenues of $6.4 million, up from $4.5 million registered in the prior-year quarter. The segment reported operating loss of $1.6 million compared with the year-ago quarter’s loss of $0.4 million.

Operating Highlights & Expenses

Cost of sales in the fourth quarter increased 9.8% from the prior-year quarter’s figure. Gross profit, as a percentage of net sales, declined 170 basis points (bps) to 27.8% from the year-ago quarter’s figure.

Operating income dropped 0.7% year over year to $25.8 million. Also, the operating margin declined 40 bps to 4.4% from the prior-year quarter’s level. Selling and administrative expenses inched up 1.3% year over year. Net income totaled $18 million, up from $16.8 million recorded in the year-ago quarter.

Balance Sheet

As of Dec 31, 2019, Pool Corp’s cash and cash equivalents amounted to $28.6 million compared with $16.4 million on Dec 31, 2018. Total net receivables, including pledged receivables, rose 9% and inventory levels rose 4% year over year. Its net long-term debt amounted to $499.7 million, down 24% from the prior-year quarter’s level. Goodwill increased to $188.6 million compared with $188.5 million reported in the prior-year quarter.

2019 Highlights

In 2019, net sales amounted to $3.2 billion, up 6.7% year over year.

Adjusted earnings per share (EPS) for the year ended Dec 31, 2019 was reported at $5.83 compared with $5.26 in 2018.

Operating margin increased 20 bps to 10.7% for the year ended Dec 31, 2019, compared with 10.5% reported in 2018.

2020 Guidance

For 2020, Pool Corp expects EPS in the range of $6.47-$6.77. The Zacks Consensus Estimate for current-year earnings is pegged at $6.64.

How Have Estimates Been Moving Since Then?

Estimates revision followed a flat path over the past two months. The consensus estimate has shifted -6.43% due to these changes.

VGM Scores

At this time, Pool Corp. has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Pool Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.