Pool Corp. (POOL) reported third-quarter 2010 earnings of 45 cents per share, higher than the Zacks Consensus Estimate of 42 cents. The increase was driven by a modest top-line growth along with efficient cost management. Pool had incurred a loss of 19 cents in the comparable quarter last year.
The company reported a 6% year-over-year increase in net sales to $455 million during the quarter, missing the Zacks Consensus Estimate of $456 million.
Inside the Headline Numbers
Pool experienced a 3% hike in Base business sales, primarily aided by market share gains, higher consumer spending and expansion in product offerings including replacement parts as well as tile. Favorable weather condition excluding the West Coast also impacted the business largely. The Base business enjoyed the year-over-year growth despite the weakness in irrigation construction markets. Sales from three of its largest markets California, Florida and Texas were down 0.7% year over year.
Gross profit climbed 6% to $130.9 million, while gross margin spiked 10 basis points (bps) year over year to 28.8%. Operating expenses inched up 3% from the year-ago period to $93.8 million, mainly due to the recent acquisition-related charges. Base business operating expenses were flat year over year after recording a $2.9 million rise in incentive costs, which were slightly offset by drop in bad debt expense, facility lease costs and other expenses. Pool reported a robust 15% increase in the quarter’s operating income to $37.0 million while operating margin expanded 60 bps.
Financials
Turning to the balance sheet, cash and cash equivalents increased 7% to $32.6 million. Net receivables shot up 4% from the prior-year period to $155.3 million. This was inclusive of a 7% increase attributed to sales from recent acquisitions and higher vendor rebate receivables, offset somewhat by a decrease in net trade receivables from base business sales. Inventory levels fell 4% year over year to $306.6 million at the end of the third quarter. Total debt outstanding was $231.2 million versus $273.3 million in the year-ago period.
Outlook
For full year 2010, management maintained its earnings per share guidance range of $1.10 – $1.15.
Although the third-quarter results signaled a revival in the company’s business, which came on the back of resurgence in global economy, we believe, Pool is not yet totally immune to challenges. Macroeconomic factors like depressed valuation of residential real estate will continue to challenge sales growth in the near term. Hence, we have a Zacks Rank of #3 (short-term Hold recommendation) on the shares.
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