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Pool Corp.'s (POOL - Analyst Report)) first-quarter 2013 earnings per share of 7 cents beat the Zacks Consensus Estimate by 16.7% but were 12.5% lower than the year-ago level. The year-over-year decline in the bottom line was mainly due to muted top-line growth and lower gross margin.

Net sales in the reported quarter increased only 2% year over year to $370.4 million, ahead of the Zacks Consensus Estimate of $364.0 million. Tough year-over-year comparisons due to record warm temperatures across the Northeast and Midwest in the year-ago period led to the subdued improvement in sales. Unfavorable weather, fewer selling days and an overall tough economy resulted in a 15% sales decline in Europe.

Sales on the irrigation side of the business increased 14% owing to the gradual recovery of the housing market in some of the key regions.

Gross profit was flat at $104.8 million but gross margin fell 60 basis points (bps) to 28.3% due to competitive pricing pressure and an adverse product mix.

Operating income in the quarter increased 15% to $6.9 million and operating margin rose 20 bps to 1.9% owing to lower operating expenses.

Guidance

For 2013, management reiterated its expectation for earnings per share in the range of $2.13−$2.23 per share, up 15%−20% from its adjusted 2012 EPS. Sales growth for 2013 is expected to be in the range of 5%–7%. Pool projects modest inflationary expense for the rest of the year. Management anticipates increase in share repurchases during the balance of the year.

Our Take

Despite tough weather comparisons, Pool delivered a better-than-expected quarter. Pool also appears to hold promise over the longer term. Some commendable attributes like a steady turnaround of the irrigation side of business, which was once struggling, and overall market share gains will help drive the company’s business ahead.

Pool’s business is susceptible to changes in weather. Normally, sales are mostly benefited by weather conditions in the second quarter of a calendar year. Hence, with the company stepping into the second quarter, which is seasonally the strongest, Pool is likely to perform better in the near term.  

Pool currently holds a Zacks Rank #2 (Buy). Some companies from the leisure and recreational products sector that are worth a look include Smith & Wesson Holding Corp. (SWHC - Snapshot Report), Sturm, Ruger & Co. Inc. (RGR - Snapshot Report) and Polaris Industries Inc. (PII - Snapshot Report). While Smith & Wesson and Strurm, Roger hold a Zacks Rank #1 (Strong Buy). Polaris carries a Zacks Rank #2 (Buy).

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