POOL CORP Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Solid performance in maintenance-related sales and progress on strategic priorities like network expansion, capacity creation, pricing optimization, private label product sales, and POOL360 Ecosystem adoption.
• Gross margins finished in line with prior year, showing progress on structural margin initiatives despite product mix drag from new construction and renovation headwinds.
• Sales by geography: Florida showed positive sales trend, Arizona flat (Pool business positive due to excessive heat), Texas and California down due to weak discretionary spending. Europe's third quarter results improved sequentially but may be impacted by cautious consumer in fourth quarter.
• Product categories: Chemical sales up 2%, building material sales down 9%, equipment sales up 1%. Commercial sales increased 7%, independent retail customer sales declined 2%, Pinch A Penny franchisee sales flat.
• POOL360 platform: Orders processed through B2B application increased 14.5% of total sales, with POOL360 water test and service software rolled out, and roadshow conducted to promote solutions.
• Network expansion: Opened three new sales centers year-to-date, with Pinch A Penny franchise network adding three new stores.

Segment Performance

• Chemical Sales: Increased 2%, with mid-teens growth in private label chemical products and 4% overall volume growth, exceeding installed base increase. Contribution not specified as a percentage.
• Building Material Sales: Down 9%, reflective of tough new construction and remodel environment but better than industry estimates for new pool builds.
• Equipment Sales (excluding cleaners): Up 1%, boosted by recovery in heaters and solid demand for pumps, lights, electrical products, and filters.
• Geography: Florida sales grew 1%, Arizona was flat, Texas down 6%, California down 3%, Europe down 1%. Horizon net sales declined 7% compared to third quarter 2023.

Guidance

• Maintaining full-year diluted earnings per share guidance range of $11.06 to $11.46 including updated $0.21 estimate and tax benefit from ASU.
• Expected fourth quarter sales in line with year-to-date performance. New pool construction could decline closer to 20%, but still within forecasted range. Maintenance and repair activity steady, with Florida having higher due to storm-damaged pool repairs. Hurricane impacts created short-term disruptions but facilities restored quickly.
• Encouraged by economic factors like stable home values, record home equity levels, sunbelt migration, and resilient consumer, expecting favorable growth opportunities in coming years.

Risks

• Hurricane Impacts: Hurricanes created short-term disruptions to business, though facilities sustained minor damage and operations were restored quickly.
• Weak Discretionary Spending: Discretionary portion of business impacted by hesitant consumer, especially on entry-to mid-level prospective pool buyers.
• Soft New Pool Construction and Remodel Activity: New pool construction and remodel activity challenges, with residential construction and remodel remaining challenged, affecting overall sales.
• Competitive Landscape: Industry competitiveness, with some competitors selling on price, though Pool Corporation focuses on value and customer experience.

Question and Answer

Q: Was there any impact specifically from the hurricanes in the third quarter and how might it trickle through to next year?

A: Hurricanes were late in the third quarter, with initial pickup in maintenance and repair, but headwind on new construction in fourth quarter with potential tailwinds in first quarter of next year.

Q: On inventories, are you happy with current levels and thoughts on pre-buy season pricing?

A: Happy with current inventory levels, having completed reduction efforts, and pre-buy from equipment vendors expected to be in 2% to 3% range.

Q: What are OEMs saying about equipment pricing for 2025?

A: Equipment pricing from OEMs expected to be in 2% to 3% range, similar to normal flow through the channel.

Q: How should we think about fourth quarter gross margin?

A: Fourth quarter gross margin expected to be similar to last year, well ahead of historical levels due to normalized sales and operating efficiency.

Q: Feedback on POOL360 initiatives and roadshow?

A: POOL360 water test and service software received good feedback, with roadshow promoting solutions and dealers showing positive responses.

Q: Thoughts on long-term growth algorithm and acquisitions?

A: Long-term growth algorithm intact, but acquisition front challenging as few acquisitions can drive 1% growth; growth expected from share gain, installed base growth, and new products.

Q: Private label offering expansion and margins?

A: Private label important, focused on chemical and maintenance products, margins accretive and better than other products.

Q: Competitive landscape impact?

A: Industry more competitive, but Pool Corporation sells on value and customer experience, with competitive pressures ebbing and flowing with demand.

Q: Chemical supply chain and pricing outlook?

A: Chemical supply chain more diverse, pricing fairly stable with no major changes; fire in Atlanta had limited impact.

Q: Q4 sales tracking and inflation guide change?

A: Q4 sales tracking above minus 5% cited, inflation guide change due to mix of products and chemical volumes; no significant reason for change.

Q: Commercial market growth deceleration and retail trends?

A: Commercial growth deceleration due to project timing, retail trends impacted by discretionary items like robotic cleaners; retail business good but discretionary items under pressure.

Q: Near-term growth algorithm and Q4 sales tracking?

A: Near-term growth algorithm far from normal, Q4 sales tracking above minus 5% cited with strong demand in Florida but uncertainty on new pool construction impact.

Q: Gross margin bridge and Q4 margin expectation?

A: Gross margin bridge reflecting normalized levels, Q4 margin expected to be similar to last year, well ahead of historical levels.