Pool Corp. (POOL) posted a third-quarter loss of $9.3 million, or 19 cents a share. Excluding the non-cash impairment charge at Latham Acquisition Corp., in which the company owns a 38% equity interest investment, adjusted earnings came in at 35 cents.
Results were below the Zacks Consensus Estimate of 42 cents. The company had earned 45 cents in the year-ago quarter. Results reflected a slowdown in construction activity and adverse weather conditions.
Pool Corp. also lowered its earnings guidance due to the adverse weather impact of the third quarter and a modest seasonal drag from the recent acquisition of General Pool & Spa Supply. The company now expects to earn 95 cents a share to $1 a share, excluding the LAC impairment charge and any other one-time charges, down from its previous guidance range of $1 to $1.05 a share.
During the quarter, the company reported a 13% year-over-year drop in net sales to $430.1 million. New pool construction is down sharply and the recession is forcing consumers to cut back on expenditures. Additionally, unfavorable weather in the Central and Northern U.S. markets negatively impacted the company’s earnings.
Gross profit was down 13% from the year-ago period to $123.4 million, though gross margin remained flat year-over-year at 28.7%. The company continued to experience negative pressures from the competitive pricing environment.
However, operating expenses decreased 12% from the year-ago period to $91.3 million due to cost containment measures. While operating income was down 17% from the prior year period to $32.1 million, operating margin decreased 30 basis points to 7.5%.
The company also managed to reduce debt levels by $103.3 million from the prior-year period. This resulted in a 45% decrease in interest expense.
Turning to the balance sheet, net receivables declined 16% from the prior-year period due to lower sales and a greater mix of cash-to-credit sales. Inventory levels decreased 8% year over year to $318.2 million at Sep 30, 2009. Day Sales Outstanding (DSO) for the quarter improved to 35.5 days, compared to 36.4 days in the prior-year period.
Management expects new pool construction to be down approximately 50% in the U.S. during 2009. However, the rate of decline in sales is moderating. We expect the company to benefit from pent-up demand once the economic environment improves. Though Pool Corp. is unquestionably the leader in the industry, we believe it will need an increase in demand to reap the full benefits of its expense reduction efforts. However, our concern remains about the rate of recovery, especially in the pool construction/major renovation business.
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