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Pool Corp. (POOL) Up 8.6% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Pool Corp. (POOL - Free Report) . Shares have added about 8.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Pool Corp. due for a pullback? 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 Corporation Q3 Earnings Beat
Pool Corporation reported better-than-expected results in the third quarter of 2018. Earnings of $1.66 per share in the quarter topped the Zacks Consensus Estimate of $1.58 by 5.1%. The bottom line also increased 43% from the year-ago quarter on the back of higher demand trends for discretionary pool and irrigation-related products, coupled with tax benefits.
Quarterly net sales of $811.3 million surpassed the consensus mark of $804 million by 0.9% and also grew 9.1% year over year. The revenue growth was primarily attributable to improved performance of the company’s base business. Despite abnormal weather conditions in Texas, wildfires in California and the impact from Hurricane Florence, base volumes grew in the quarter.
Segmental Performance
Pool Corp reports operations under two segments: The Base Business segment (constituting majority of the business) and Excluded segment (sale centers excluded from base business).
The Base business segment recorded sales growth of 8% to nearly $801 million year over year, courtesy of higher demand for discretionary products, comprising building materials and other commercial product offerings. Operating income in the segment increased 12.2%. Operating margin expanded 30 basis points (bps) from the year-ago quarter.
The Excluded segment reported net sales of $10.3 million, up from about $5 million in the prior-year quarter. The segment incurred operating loss of $0.112 million compared with the prior-year quarter’s $0.487 million.
Operating Highlights & Expenses
Cost of sales in the quarter increased 9.4% from the prior-year quarter. Gross profit, as a percentage of net sales, fell 10 bps to 29% from the year-ago level due to changes in product mix. The company also pointed out that gross margin will face some impact in the last four months of 2018, given materials and operating cost pressures.
Operating income increased 13% year over year to $92.3 million. Operating margin improved 40 bps to 11.4% from the prior-year quarter. Selling and administrative expenses increased 6% year over year. Net income was $69.3 million, up from $48.8 million recorded in the year-ago quarter.
Adjusted EBITDA increased to $102.5 million in the quarter from $91.7 million in the third quarter of 2017.
Balance Sheet
Cash and cash equivalents as of Sep 30, 2018 were $35.7 million compared with $36.4 million on Sep 30, 2017. Total net receivables, including pledged receivables, increased 10% and inventory levels grew 26% as of the same date compared with Sep 30, 2017. Notably, this year, the company increased its inventory purchases in advance of greater-than-normal vendor price increases, which negatively impacted operating cash flow. However, it believes that this should positively impact operating income in the remainder of 2018 and fiscal 2019.
Its long-term debt was $580.7 million, up 16.1 million from the prior-year quarter. Goodwill increased 5% year over year.
Cash provided by operations declined $60.7 million to $4.5 million. The decline reflects timing differences as a result of the pre-price increase inventory purchases discussed above, which is expected to benefit future periods’ cash flow as the inventory is sold.
Raised 2018 EPS Expectation
For 2018, the company expects EPS in the range of $5.58-$5.78, up from the previous guided range of $5.50-$5.70. This increase in expectation mainly reflects the 8-cent per share benefit realized from Accounting Standards Update or ASU 2016-09 in the third quarter. The company did not project any additional tax benefit from ASU 2016-09 in its guided EPS range for the remainder of the year.
How Have Estimates Been Moving Since Then?
Fresh estimates followed an upward path over the past two months.
VGM Scores
Currently, Pool Corp. has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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 #2 (Buy). We expect an above average return from the stock in the next few months.
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Pool Corp. (POOL) Up 8.6% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Pool Corp. (POOL - Free Report) . Shares have added about 8.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Pool Corp. due for a pullback? 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 Corporation Q3 Earnings Beat
Pool Corporation reported better-than-expected results in the third quarter of 2018. Earnings of $1.66 per share in the quarter topped the Zacks Consensus Estimate of $1.58 by 5.1%. The bottom line also increased 43% from the year-ago quarter on the back of higher demand trends for discretionary pool and irrigation-related products, coupled with tax benefits.
Quarterly net sales of $811.3 million surpassed the consensus mark of $804 million by 0.9% and also grew 9.1% year over year. The revenue growth was primarily attributable to improved performance of the company’s base business. Despite abnormal weather conditions in Texas, wildfires in California and the impact from Hurricane Florence, base volumes grew in the quarter.
Segmental Performance
Pool Corp reports operations under two segments: The Base Business segment (constituting majority of the business) and Excluded segment (sale centers excluded from base business).
The Base business segment recorded sales growth of 8% to nearly $801 million year over year, courtesy of higher demand for discretionary products, comprising building materials and other commercial product offerings. Operating income in the segment increased 12.2%. Operating margin expanded 30 basis points (bps) from the year-ago quarter.
The Excluded segment reported net sales of $10.3 million, up from about $5 million in the prior-year quarter. The segment incurred operating loss of $0.112 million compared with the prior-year quarter’s $0.487 million.
Operating Highlights & Expenses
Cost of sales in the quarter increased 9.4% from the prior-year quarter. Gross profit, as a percentage of net sales, fell 10 bps to 29% from the year-ago level due to changes in product mix. The company also pointed out that gross margin will face some impact in the last four months of 2018, given materials and operating cost pressures.
Operating income increased 13% year over year to $92.3 million. Operating margin improved 40 bps to 11.4% from the prior-year quarter. Selling and administrative expenses increased 6% year over year. Net income was $69.3 million, up from $48.8 million recorded in the year-ago quarter.
Adjusted EBITDA increased to $102.5 million in the quarter from $91.7 million in the third quarter of 2017.
Balance Sheet
Cash and cash equivalents as of Sep 30, 2018 were $35.7 million compared with $36.4 million on Sep 30, 2017. Total net receivables, including pledged receivables, increased 10% and inventory levels grew 26% as of the same date compared with Sep 30, 2017. Notably, this year, the company increased its inventory purchases in advance of greater-than-normal vendor price increases, which negatively impacted operating cash flow. However, it believes that this should positively impact operating income in the remainder of 2018 and fiscal 2019.
Its long-term debt was $580.7 million, up 16.1 million from the prior-year quarter. Goodwill increased 5% year over year.
Cash provided by operations declined $60.7 million to $4.5 million. The decline reflects timing differences as a result of the pre-price increase inventory purchases discussed above, which is expected to benefit future periods’ cash flow as the inventory is sold.
Raised 2018 EPS Expectation
For 2018, the company expects EPS in the range of $5.58-$5.78, up from the previous guided range of $5.50-$5.70. This increase in expectation mainly reflects the 8-cent per share benefit realized from Accounting Standards Update or ASU 2016-09 in the third quarter. The company did not project any additional tax benefit from ASU 2016-09 in its guided EPS range for the remainder of the year.
How Have Estimates Been Moving Since Then?
Fresh estimates followed an upward path over the past two months.
VGM Scores
Currently, Pool Corp. has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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 #2 (Buy). We expect an above average return from the stock in the next few months.