Pool Corporation. (
Q3 2010 Earnings Conference Call
October 21, 2010 11:00 am ET
Manny Perez de la Mesa - President and Chief Executive Officer
Mark Joslin – Chief Financial Officer and Vice President
Dave Manthey - Robert W. Baird
Anthony Lebiedzinski - Sidoti & Company
Daniel Garofalo - Piper Jaffray
Previous Statements by POOL
» Pool Corporation Q2 2010 Earnings Call Transcript
» Pool Corporation Q1 2010 Earnings Call Transcript
» Pool Corp Q4 2009 Earnings Call Transcript
» Pool Corporation Q3 2009 Earnings Conference Call
Greetings and welcome to the Pool Corporation Third Quarter 2010 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Mr. Mark W. Joslin, Vice President, Chief Financial Officer for Pool Corporation. Thank you, Mr. Joslin, you may begin.
Mark W. Joslin
Thank you Claudia, good morning everyone and welcome to our third quarter 2010 conference call. I would like to once again remind our listeners that our discussion, comments, and responses to questions today may include forward-looking statements, including management's outlook for 2010 and future periods.
Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ materially from projected results is discussed in our 10-K.
Now, I will turn the call over to our President and CEO, Manny Perez de la Mesa. Manny?
Manny Perez de la Mesa
Thank you Mark and thank you all for joining us on the conference call. I’m going to focus on three areas in my prepared remarks. First our base business sales growth, second our contribution margin and third our cash flow. Regarding our sales, our base business sales growth in the blue business was 4% in the quarter, much like the 5% growth realized in the second quarter increasing our year to date blue business sales growth to 3%. While many of our investors and many of you on the call live in Snow Belt markets where we realized significantly higher sales growth, some belt markets did not experience the same kind of weather benefit as in the snow belt during this pool season. In fact in the three largest markets California, Florida and Texas our sales were down 0.7% in the quarter in contrast with our sales increase of 2.9% in the 2
quarter in these three states.
The three primary reasons for this drop off are that we had some deflation chemical prices that combined with effectively no inflation elsewhere resulted in an overall net deflation for this pool season. This was coupled with a rush early in the season due to carry over pent up demand from 2009 and we also had more pricing and credit disciplines we progressed during 2010.
Our green business had a sales decrease of 9% in the 3
quarter and was down 11% year to date. We believe that we continued to increase our market share in the 2010 pool season with progressively better sales and service execution as well as the use of marketing and technology tools utilized to help grow our customers businesses. While it’s early to make comments for 2011, by every indication 2010 is proving to be the transition year that we expected. As communicated in our September 13
investor day presentation, we believe that the macro-economic factors including the depressed evaluation of residential real estate will continue to challenge sales growth in the near term.
Nonetheless, we believe that sales growth albeit modest is attainable by us particularly given the strength and quality of our people. If they’re repeating at this point that our success in growing sales and market share both historically and in the future is based on collective execution to provide exceptional value to both our customers and our suppliers.
Regarding contribution margins, I have stated over the past two years that our organic contributions margin should approximate 20% for the next 5 to 600 million dollars of sales growth. While we have realized a modest $25.8 million in base business sales growth year to date 2010 as noted on our base business addendum, our base business operating income is up 6.4 million or a 25% contribution margin.
We believe that incorporating a 20% contribution margin on future years, base business sales growth is reasonable until we get to 2.1 to 2.2 billion dollars in sales after which the marginal contribution will approximate 15%. Logically, operating margin from acquisitions will be much less as we don’t have the same kind of infrastructure leverage as we do with our base business.
In terms of cash flow, our free cash flows once again exceed net income in 2010. This is attributable largely to improved execution in every facet of working capital management. While having free cash flow exceeding net income may not be attainable every year, we believe that an environment of modest sales growth and modest I mean low to mid single digits and high infrastructure leverage as we anticipate 2011 will be – is certainly achievable.
Before turning the call back over to Mark, I’d like to note the high level of commitment on the part of every member of the Pool Corp team. While the past several years have been the most challenging in our industry’s history and in most of our careers, our commitment to our industry and to our customers has resulted in our earning of greater share of our customers businesses while simultaneously improving every facet of our own execution. The excitement of our team to continue providing progressively more value to our customers and our suppliers is contagious.