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Pool Corporation (POOL) Rides on Expansion Amid High Costs
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Pool Corporation (POOL - Free Report) capitalizes on its large market presence and consumer spending to drive incremental revenues. However, seasonal fluctuations affect its business.
The second quarter of 2018 marked the 32nd consecutive quarter of year-over-year sales growth for Pool Corporation. This top-line growth can be primarily attributed to improved performance of its base business. Notably, the company should continue benefiting in the near term, backed by base business sales growth and favorable trends in the housing market.
Pool Corporation’s shares have surged 61.6% in a year, outperforming the industry’s 30.1% rally. Notably, the company’s earnings beat/met the Zacks Consensus Estimate in 13 out of the trailing 15 quarters, with an average positive surprise of 7.8% in the trailing four quarters.
Expansion Strategy & Robust Brand Presence to Drive Growth
Pool Corporation’s market-leading position offers a cost advantage, allowing it to generate higher return on investment than smaller companies. Further, its leadership position provides the scope to further benefit from the flourishing housing market, which continues to boost the demand for its products.
Meanwhile, the company is focused on expansion. It plans to foray into newer geographic locations, expand in existing markets and launch product categories for boosting its market share. To this end, Pool Corporation is also trying to expand through various acquisitions. It completed six acquisitions in the last year.
We believe that Pool Corporation will continue to capture market share from regional pool and irrigation distributors, given its economies of scale, which drives higher rebates, and better sourcing, IT resources and product availability. Additionally, there are opportunities to acquire shares from other distributors that are not pool-focused.
Consequently, Pool Corporation’s outdoor living products and services exhibited strong performance, with 13% growth in 2017, despite disruptions from natural disasters.
Existing Pools Drive Revenues
Pool Corporation generates a large portion of its earnings from existing pools. More than half of its gross profits are generated from products related to the maintenance and repair of pools while the rest is derived from the construction and installation of pools and landscaping.
Over the past five years, the pool industry has been showing signs of recovery, mostly supported by the gradual improvement in remodeling and replacement activity. The company’s existing pool business witnessed revenue growth throughout 2015, 2016 and 2017, mainly aided by higher replacement activities. The trend is expected to prevail in the months ahead.
In the second quarter, building materials maintained strong performance of 12% growth, with 8% increase in the commercial category. In addition, pool equipment growth was 8%. The improvement in these product categories is expected to continue.
Seasonal Fluctuations Affect Business
Pool Corporation’s business is susceptible to changes in the weather. Normally, sales are favored by weather conditions in the second and third quarter of a calendar year while unseasonably late warming trends in spring or early winters affect it.
Meanwhile, though the company has branch locations nationwide, roughly 50% of its branches and sales are in California, Florida, Texas and Arizona. This reflects a high degree of concentration and dependence on these areas and their weather conditions. Resultantly, hurricanes in Florida and Texas, along with natural disasters in other places, negatively impacted the company’s 2017 earnings and sales.
Rising Costs Concern
Pool Corporation has been facing increased expenses lately. These are due to higher labor and delivery costs as well as investments in information technology systems and hardware. In the second quarter of 2018, operating expenses increased 8% year over year. In fact, we believe, in order to achieve high margins, Pool Corporation has to work hard to cut down expenses.
Meanwhile, the company conducts business internationally, which increases its dependence on other economies. Thus, unfavorable political and regulatory conditions in the market where it functions, as well as negative currency translation, might dent its international sales. Additionally, any restrictions placed on water usage due to government ruling or ethical standards during drought conditions remain major causes of concerns for the swimming pool market.
Callaway Golf, Johnson Outdoors and Malibu Boats’ earnings for 2018 are expected to grow 88.7%, 46.4% and 24.2%, respectively.
5 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2018 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs. A bonus Zacks Special Report names this breakthrough and the 5 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains.
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Pool Corporation (POOL) Rides on Expansion Amid High Costs
Pool Corporation (POOL - Free Report) capitalizes on its large market presence and consumer spending to drive incremental revenues. However, seasonal fluctuations affect its business.
The second quarter of 2018 marked the 32nd consecutive quarter of year-over-year sales growth for Pool Corporation. This top-line growth can be primarily attributed to improved performance of its base business. Notably, the company should continue benefiting in the near term, backed by base business sales growth and favorable trends in the housing market.
Pool Corporation’s shares have surged 61.6% in a year, outperforming the industry’s 30.1% rally. Notably, the company’s earnings beat/met the Zacks Consensus Estimate in 13 out of the trailing 15 quarters, with an average positive surprise of 7.8% in the trailing four quarters.
Expansion Strategy & Robust Brand Presence to Drive Growth
Pool Corporation’s market-leading position offers a cost advantage, allowing it to generate higher return on investment than smaller companies. Further, its leadership position provides the scope to further benefit from the flourishing housing market, which continues to boost the demand for its products.
Meanwhile, the company is focused on expansion. It plans to foray into newer geographic locations, expand in existing markets and launch product categories for boosting its market share. To this end, Pool Corporation is also trying to expand through various acquisitions. It completed six acquisitions in the last year.
We believe that Pool Corporation will continue to capture market share from regional pool and irrigation distributors, given its economies of scale, which drives higher rebates, and better sourcing, IT resources and product availability. Additionally, there are opportunities to acquire shares from other distributors that are not pool-focused.
Consequently, Pool Corporation’s outdoor living products and services exhibited strong performance, with 13% growth in 2017, despite disruptions from natural disasters.
Existing Pools Drive Revenues
Pool Corporation generates a large portion of its earnings from existing pools. More than half of its gross profits are generated from products related to the maintenance and repair of pools while the rest is derived from the construction and installation of pools and landscaping.
Over the past five years, the pool industry has been showing signs of recovery, mostly supported by the gradual improvement in remodeling and replacement activity. The company’s existing pool business witnessed revenue growth throughout 2015, 2016 and 2017, mainly aided by higher replacement activities. The trend is expected to prevail in the months ahead.
In the second quarter, building materials maintained strong performance of 12% growth, with 8% increase in the commercial category. In addition, pool equipment growth was 8%. The improvement in these product categories is expected to continue.
Seasonal Fluctuations Affect Business
Pool Corporation’s business is susceptible to changes in the weather. Normally, sales are favored by weather conditions in the second and third quarter of a calendar year while unseasonably late warming trends in spring or early winters affect it.
Meanwhile, though the company has branch locations nationwide, roughly 50% of its branches and sales are in California, Florida, Texas and Arizona. This reflects a high degree of concentration and dependence on these areas and their weather conditions. Resultantly, hurricanes in Florida and Texas, along with natural disasters in other places, negatively impacted the company’s 2017 earnings and sales.
Rising Costs Concern
Pool Corporation has been facing increased expenses lately. These are due to higher labor and delivery costs as well as investments in information technology systems and hardware. In the second quarter of 2018, operating expenses increased 8% year over year. In fact, we believe, in order to achieve high margins, Pool Corporation has to work hard to cut down expenses.
Meanwhile, the company conducts business internationally, which increases its dependence on other economies. Thus, unfavorable political and regulatory conditions in the market where it functions, as well as negative currency translation, might dent its international sales. Additionally, any restrictions placed on water usage due to government ruling or ethical standards during drought conditions remain major causes of concerns for the swimming pool market.
Zacks Rank & Stocks to Consider
Pool Corporation currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the industry include Callaway Golf , Johnson Outdoors (JOUT - Free Report) and Malibu Boats (MBUU - Free Report) , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Callaway Golf, Johnson Outdoors and Malibu Boats’ earnings for 2018 are expected to grow 88.7%, 46.4% and 24.2%, respectively.
5 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2018 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs. A bonus Zacks Special Report names this breakthrough and the 5 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains.
Click to see them right now >>