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Pool Corporation Q1 2010 Earnings Call Transcript

Pool Corporation Q1 2010 Earnings Call Transcript

Pool Corporation (POOL)

Q1 2010 Earnings Call Transcript

April 22, 2010 11:00 am ET


Mark Joslin – VP and CFO

Manny Perez de la Mesa – President and CEO


Mark Rupe – Longbow Research

Kyle O'Meara – Robert W. Baird

Anthony Lebiedzinski – Sidoti & Co.

Kathryn Thompson – Thompson Research

Keith Hughes – SunTrust Robinson

David Mann – Johnson Rice


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Greetings, and welcome to the Pool Corporation first quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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 to your host, Mr. Mark Joslin, Pool Corporation's Chief Financial Officer. Thank you. Mr. Joslin, you may begin.

Mark Joslin

Thank you, Taanya. Good morning, everyone; and welcome to our first quarter 2010 conference call. As usual, I would like to 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. Good morning to all on the call. In investor meetings, the most pressing question that I get from those that know the company well is, whether I have seen the turn from the headwinds of the past four years? The answer now is that I believe we have. After a week first two plus months this year, where some felt markets were battered with much colder and wetter-than-normal, in mid-March, it seemed like the sun came out and our daily sales rates rebounded. By month end, we had recovered the ground lost in the first part of March to end with flat year-on-year sales for the month, excluding the benefit of one additional sales day. This momentum has carried over into April, where we are realizing our positive sales comp for the first time in several years. At this juncture, every indication is that we will have a positive sales comp in the second quarter and the balance of 2010.

When looking at our business, the major headwinds of the last several years have been the 70% to 80% decline in new construction, and the deferral of discretionary remodel activity. We anticipate that new construction will be roughly flat, and there will be a modest recovery in replacement remodel activity in 2010. We expect to continue to grow market share in all segments, including the non-discretionary maintenance and repair segment, as we have realized historically.

With respect to the first quarter, where we had a 4.6% year-on-year decrease in base business sales, our Blue business sales were down 2.8%, while our Green business was down almost 19%. There were no significant differences by market, within each of our Blue and Green business performance. In all cases, there was notable improvement in March, with the Blue business having a positive sales comp, and the Green business having less of a sales decrease.

Moving to gross margins. The year-on-year decrease was expected, given the benefits realized in last year's first quarter from the purchases made in late 2008 in anticipation of price increases. But the gross margin decrease was frankly greater than expected, as irrational pricing became more prevalent than normal in the first quarter. Here, it is important to note that we have significant competitive advantages, including lower product costs, lower support costs to percentage sales, a better inventory stock position to provide better customer service, more marketing programs and technology tools to help our customers with their businesses, more business development and product specialist resources than the rest of the industry, more locations to rebalance inventories efficiently, more management training and development programs to enhance the caliber, depth, and strength of our team; essentially, I think you all understand, yet competitors use price as their only means to compete. This tactic on their part is very shortsighted, in my opinion.

In addition, by lowering prices in individual markets, the adverse impact weighs proportionately much more on them. Be that as it may, we could have some extended drag in the short term on margins. Independently, we continue to make progress on our sales, purchasing and pricing execution, including a growing percentage of Pool Corp branded products, more exclusive products, less pricing errors, and more pricing discipline, all in order to continuously improve our gross margins. For the balance of 2010, I expect that the year-on-year performance in gross margins will improve versus the first quarter as we are already realizing in April. But, we may not get to see an improvement for the year, given the uncertainty of competitors' pricing practices.

Turning to expenses, these were pretty much as expected, as the continuous efficiency programs of the past several years offset the additional cost of the general pool supply acquisition in October of 2009. From a sales network standpoint, it is essentially unchanged, as we consolidated several centers over the winter, but also opening new centers in markets where we had no visible practice. As many of you know, we are constantly looking at enhancing our market position with both new openings and acquisitions, and have the financial ability to execute on opportunities that make sense.

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