Pool's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Pool (POOL)

Q1 2012 Earnings Call

April 19, 2012 11:00 am ET

Executives

Mark W. Joslin - Chief Financial Officer and Vice President

Manuel Perez De La Mesa - Chief Executive Officer, President and Director

Analysts

Leah Villalobos - Longbow Research LLC

David Mandell

Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Presentation

Operator

Good morning, and welcome to the Pool Corp. First Quarter 2012 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mark Joslin, Vice President and Chief Financial Officer. Please go ahead.

Mark W. Joslin

Thank you, Valerie. Good morning, everyone, and welcome to our first quarter 2012 conference call. I would once again like remind our listeners that our discussion, comments and responses to questions today may include forward-looking statements, including management's outlook for 2012 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'll turn the call over to our President and CEO, Manny Perez De La Mesa. Manny?

Manuel Perez De La Mesa

Thank you, Mark, and good morning to everyone.

Well, the unusually mild winter prompted many Pool owners to open their pools earlier than normal in seasonal markets or increased pool use in year-round markets, both of which contributed to our sales growth in the quarter. Some of the sales increase is a shift from the second quarter, but part of it is a benefit for the quarter and 2012, driving our EPS range increase for the year.

As evidenced by the major market increases referenced later, the weather benefit was primarily in the eastern half of North America, with Western markets weather much closer to normal in the quarter. Besides weather, market share gains and modest market growth also contributed to our sales increase.

In terms of Base business sales, our Blue business sales were up 13.6% while our Green business sales were up a more modest 2.2%. This difference is due to both the impact of weather and the Green business being much more heavily weighted to new construction instead of an installed base.

The East versus West contrast becomes apparent as California, Texas and Arizona Blue sales were up 7% in aggregate, while Florida and all other Blue markets were up 18.1%. I believe that 7% is more reflective of our expectations for the balance of 2012, with roughly half of that growth coming from share increases and the other half from market expansion and inflation.

Our sales growth in our strategic priority customer segment retail was over 10%, aided by stable weather, as well as market share gains. Our strategic priority product category, building materials, had over 25% sales growth in the quarter, which was primarily driven by market share gains together with some market recovery in remodeling activity.

Since many of you asked about our European business given the well-publicized economic issues there, our Base business sales in local currency were up 6.8% in the quarter in Europe. As additional information, our Europe business will represent less than 7% of our total 2012 sales.

At this juncture, other than the weather benefit in the quarter, our expectations for 2012 are just like they were in February when I provided annual market sales and EPS guidance. Mark will address the rest of the P&L and balance sheet, with everything being on track with expectations.

Now I'd like to share some perspective on our business, followed by an update on new locations both acquired and startups.

We are presently in our 19th year operating in the domestic Blue business. Over these past years, we have gradually built our SCP and superior networks step-by-step via a combination of new openings and acquisitions with the understanding that each market is unique and customer [ph] characteristics are also different especially in seasonal versus year-round markets.

The development of our networks was based on participating in all of the medium-size and larger markets, with those markets being premised primarily on the installed base of pools, which drive recurring maintenance, service and remodeling replacement activity.

Simultaneous with the building of our networks, we also invested in technology, marketing, logistics, best practices, and most importantly, talent development that altogether have enabled us to consistently increase market share as we provide a differentiated service and value proposition to our customers and suppliers. This is important to note as our success is primarily attributable to our investment decisions that we've made and have executed on for many years. As many of you are aware, there's a strong correlation between operating results and the sales tenures -- tenure with Pool.

Meanwhile, we are in our 14th year operating internationally with sustained strategic goals and process.

The 2 inhibiting factors though are the administrated drag from country-specific regulatory requirements and our being less able to mobilize talent to address opportunities as we do domestically given language and cultural differences. This second item is critical as we realize progress but at a slower pace.

To further build out our international network, in the past 18 months, we have added locations in Germany, Belgium, Western Canada and North of Ontario -- or North of Toronto and Ontario and we'll also be adding a third location in Mexico next month.

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