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Why Is Pool Corp. (POOL) Down 3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Pool Corp. (POOL - Free Report) . Shares have lost about 3% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

Pool Corp Q3 Earnings Beat Estimates, Increase Y/Y

Pool Corporation reported solid third-quarter 2020 results, wherein earnings and revenues not only surpassed the Zacks Consensus Estimate but also increased on a year-over-year basis. While the bottom line beat the consensus estimate for the sixth straight quarter, the top line surpassed the same for the fifth consecutive time.

Adjusted earnings of $2.71 per share in the quarter topped the Zacks Consensus Estimate of $2.14 and increased 47.3% from the year-ago quarter’s tally. Quarterly net revenues of $1,139.2 million surpassed the consensus mark of $990 million and increased 26.8% year over year.

Notably, the upside can be primarily attributed to solid performance by the Base business segment and Excluded segment. Moreover, the company witnessed solid demand for residential pool products along with product categories, including maintenance, replacement, refurbishment and construction activities.

Segmental Performance

Pool Corp reports operations under two segments — The Base Business (constituting majority of the business) and the Excluded (sale centers excluded from the Base business).

Revenues at the Base Business segment increased 26.6% year over year to $1,133.6 million. Operating income rose 41% year over year to $147.9 million. Moreover, operating margin expanded 130 basis points (bps) from the year-ago quarter’s number to 13%.

The Excluded segment delivered net revenues of $5.6 million, up from $3 million registered in the prior-year quarter. The segment reported operating income of $0.3 million against the year-ago quarter’s loss of $0.4 million. The segment’s operating margin came in at 5.6% against a negative 11.8% in the prior-year quarter.

Operating Highlights & Expenses

Cost of sales in the third quarter increased 26.5% from the prior-year quarter’s figure. Gross profit, as a percentage of net sales, increased 20 basis points (bps) year over year to 28.9% from 28.7% reported in the year-ago quarter. Selling and administrative expenses rose 18% year over year to $180.5 million.

During the third quarter, operating income increased 42% year over year to $148.2 million, while operating margin rose 140 bps to 13% from the prior-year quarter’s level.

Nonetheless, net income totaled $119.1 million, up from $79.5 million in the year-ago quarter.

Balance Sheet

As of Sep 30, 2020, Pool Corp’s cash and cash equivalents amounted to $74.7 million compared with $36.7 million as on Sep 30, 2019. Total net receivables, including pledged receivables, rose 19% year over year, while inventory levels declined 1% year over year. Its net long-term debt amounted to $328.2 million, down 39% from the prior-year quarter’s level. Goodwill increased to $199.4 million from $188.1 million reported in the prior-year quarter.

During third-quarter 2020, net cash provided by operating activities came in at $167.7 million compared with $145.8 million in the year-ago quarter.

For the nine months ended Sep 30, 2020, the company paid out cash dividends worth $68.6 million compared with $61.8 million in the prior-year quarter.

2020 Guidance

For 2020, Pool Corp expects earnings per share in the range of $8.20-$8.50 compared with the prior guidance of $7.05-$7.45. The Zacks Consensus Estimate for 2020 is currently pegged at $7.25.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 40.64% due to these changes.

VGM Scores

At this time, Pool Corp. has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise 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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