Mixed 3Q at Pool; Guides Higher - Analyst Blog
October 22 2012 - 5:10AM
Zacks
Pool Corp.’s
(POOL) third quarter 2012
adjusted earnings per share of 59 cents were ahead of the Zacks
Consensus Estimate of 56 cents and 18% above the year-ago
level. One less selling day than the third quarter of 2011
led to a tough comparison in the quarter under review.
The year-over-year increase in earnings was mainly driven by modest
top-line growth as well as reduced cost structure. Net sales in the
reported quarter increased 5.0% year over year to $528.0 million
but lagged the Zacks Consensus Estimate of $531.0 million.
Inside the Headline Numbers
Overall Base business sales of Pool improved 3% year over year.
Sales from swimming pool side business increased only 3% in the
quarter, while sales from irrigation business were up 8%. Results
were benefited by market share gains, offset somewhat by 1% decline
by adverse currency translation.
Among the three largest markets of swimming pool side business,
Florida performed relatively better while California and Texas were
a little lower than the company average. In those markets,
year-over-year comparison made a crucial difference to sales
growth.
Gross profit grew 2% year over year to $151.5 million but gross
margin fell 70 basis points (bps) to 28.7% due to cut-throat
competition, tough year-over-year comparison owing to vendor price
increases last year and an adverse customer mix. Operating margin
fell 30 bps to 7.8%.
Liquidity
Cash and cash equivalents increased 40% year over year to $28.8
million. Net receivables climbed 9% from the prior-year period to
$175.5 million.
The inventory level escalated 3% year over year to $349.3 million
at the end of the third quarter. Total long-term debt was $214.3
million versus $268.7 million in the year-ago quarter.
Guidance
After slashing the full-year earnings per share guidance in the
last quarter, management raised it this time to the range of
$1.80–$1.83 from $1.75–$1.82.
Our Take
Management still expects earnings per share to grow over 20% this
year, which if achieved, will mark the third consecutive year of
earnings growth. However, tough seasonality in the fourth quarter
and faltering consumer confidence mainly in Europe, representing 6%
of Pool’s total sales are some causes of concern.
However, on a positive note, there are some commendable attributes
in the stock like efficient cost containment efforts, a steady
turnaround of the Green business, which was once struggling, and
market share gains. The increase in full-year guidance also
portrays the company’s inherent strength.
Pool, which competes with the likes of Johnson Outdoors
Inc. (JOUT), holds a Zacks #1 Rank
(short-term Strong Buy recommendation). We reiterate our long-term
Neutral recommendation on the stock.
JOHNSON OUTDOOR (JOUT): Free Stock Analysis Report
POOL CORP (POOL): Free Stock Analysis Report
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