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Pool Corp. (POOL) Up 16.5% 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 16.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Pool Corp Q1 Earnings and Revenue Beat Estimates

Pool Corporation reported first-quarter 2020 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. While the bottom line beat the consensus estimate for the fourth straight quarter, the top line surpassed the same for the third consecutive time. 

Adjusted earnings of 71 cents per share in the quarter topped the Zacks Consensus Estimate of 65 cents and increased 20.3% from the year-ago quarter’s tally. Quarterly net revenues totaled $677.3 million, which surpassed the consensus mark of $636.5 million and increased 13.4% year over year.

Revenue growth can be primarily attributed to robust performance of the company’s Base business, primarily driven by strong demand for discretionary products and higher sales growth for construction materials and products used in the remodel and replacement of in-ground pools. Additionally, an extra selling day in the first quarter and early purchases from customers of the second quarter added to the upside.

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 13.5% year over year to $667.8 million. However, operating income fell 7.9% to $35.9 million. Moreover, operating margin contracted 120 basis points (bps) from the year-ago quarter’s number to 6.6%.

The Excluded segment delivered net revenues of $9.5 million, up from $9.1 million registered in the prior-year quarter. The segment reported operating loss of $0.3 million compared with the year-ago quarter’s loss of $0.6 million.

Operating Highlights & Expenses

Cost of sales in the first quarter increased 15.3% from the prior-year quarter’s figure. Gross profit, as a percentage of net sales, declined 120 basis points (bps) to 28% from a year ago.

Operating income dropped 7% year over year to $35.6 million. Also, the operating margin declined 110 bps to 5.3% from the prior-year quarter’s level. Selling and administrative expenses inched up 8% year over year. Net income totaled $30.9 million, down from $32.6 million recorded in the year-ago quarter.

Balance Sheet

As of Mar 31, 2020, Pool Corp’s cash and cash equivalents amounted to $17.8 million compared with $28.6 million as on Mar 31, 2019. Total net receivables, including pledged receivables, rose 10% and inventory levels rose 5% year over year. Its net long-term debt amounted to $569.7 million, down 15.9% from the prior-year quarter’s level. Goodwill increased to $193.4 million compared with $188.5 million reported in the prior-year quarter.

In the first quarter of 2020, the company repurchased 362,000 shares for $66.6 million.

Despite the coronavirus pandemic, the company declared a 5% quarterly dividend hike. The company raised quarterly dividend to 58 cents a share from the previous payout of 55 cents. The raised dividend will be paid out on May 29, 2020, to shareholders on record as of May 15, 2020.

2020 Guidance

For 2020, Pool Corp expects earnings per share in the range of $5.45-$6.05 compared with the prior guidance of $6.47-$6.77. The Zacks Consensus Estimate for full-year earnings is pegged at $5.88 per share, which is above the mid-point of the company’s revised guidance of $5.74 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

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. Notably, Pool Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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