A month has gone by since the last earnings report for Pool Corp. (POOL). Shares have added about 4.3% 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 Misses on Q4 Earnings & Revenue Estimates
Pool Corporation reported dismal fourth-quarter 2018 results, wherein both earnings and revenues missed the Zacks Consensus Estimate.
Earnings of 41 cents per share in the quarter missed the Zacks Consensus Estimate of 45 cents but increased 95.2% from the year-ago quarter number. Meanwhile, quarterly net sales totaled $543.1, which fell short of the consensus mark of $556 million but improved 6% year over year. Revenue growth can be primarily attributable to improved performance of the company’s base business. Despite abnormal weather conditions in Texas and seasonality of the business revenues increased in the quarter under review.
Let’s delve deeper into the numbers.
Segmental Performance
Pool Corp reports operations under two segments: The Base Business segment (constituting majority of the business) and the Excluded segment (sale centers excluded from base business).
The Base business segment recorded 5.1% sales growth to nearly $537.4 million year over year. Operating income in the segment increased 10.7% to $316.1 million. Also, operating margin expanded 40 basis points (bps) from the year-ago quarter number.
The Excluded segment reported net sales of $5.7 million, up from about $0.4 million registered in the prior-year quarter. The segment incurred operating loss of $0.9 million compared with the prior-year quarter’s loss of $0.1 million.
Operating Highlights & Expenses
Cost of sales in the fourth quarter increased 4.9% from the prior-year quarter. Gross profit, as a percentage of net sales, increased 100 bps to 29.5% from the year-ago driven by robust base business. The company expects margins to be mostly flat in 2019.
Operating income increased 50.5% year over year to $26 million. Also, operating margin expanded 140 bps to 4.8% from the prior-year quarter. Selling and administrative expenses too increased 4.9% year over year. Net income was $16.8 million, down from $25.7 million recorded in the year-ago quarter.
Adjusted EBITDA increased to $353.4 million in 2018 from $322.2 million in 2017.
Balance Sheet
As of Dec 31, 2018, cash and cash equivalents amounted to $16.4 million compared with $29.9 million on Dec 31, 2017. Total net receivables, including pledged receivables, increased 16% and inventory levels grew 25% as of the same date compared with Dec 31, 2017. Notably, this year, the company increased its inventory purchases ahead of higher-than-normal vendor price increases, which negatively impacted operating cash flow.
Its long-term debt was $657.6 million, up 29% from the prior-year quarter. Goodwill decreased 1% year over year.
Cash provided by operations declined to $118.7 million in 2018 from $173.5 million in 2017. The downside reflects timing differences as a result of the pre-price increase inventory purchases discussed above, which is expected to benefit future periods’ cash flow as the inventory is sold.
2019 Guidance
For 2019, the company expects EPS in the range of $6.05-$6.35, up from $5.62 reported in 2018. This upside mainly reflects the 18-cent per share benefit realized from unrealized excess tax, which will expire in the second quarter of 2019.
How Have Estimates Been Moving Since Then?
Fresh estimates followed an upward path over the past two months.
VGM Scores
At this time, Pool Corp. has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Pool Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Pool Corporation (POOL): Free Stock Analysis Report
Original post