Pool Management Discusses Q2 2012 Results - Earnings Call Transcript

Pool (POOL)

Q2 2012 Earnings Call

July 19, 2012 11:00 am ET

Executives

Mark W. Joslin - Chief Financial Officer and Vice President

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

Analysts

David Mandell

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

David S. MacGregor - Longbow Research LLC

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

Brent D. Rakers - Wunderlich Securities Inc., Research Division

Presentation

Operator

Good morning, and welcome to the Pool Corp. Second Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. And 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, Emily. Good morning, everyone, and welcome to our call. I would once again like to 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 J. Perez De La Mesa

Thank you, Mark, and good morning to everyone on the call.

Well, it was a very interesting quarter, as the yearly start to the Pool season resulted in an earlier wind down. Probably, the best reference point is Chemicals, our largest product category. In a market with roughly 1% growth in the installed base of pools, and very limited inflation, we finished May with year-to-date chemical sales up 12%, an unprecedented growth rate for this product category.

Well, June proved to be a month of adjustment as retail replenishment declined, and we finished June with year-to-date chemical sales up 6%, a more normal growth rate given the market and our typical share increases.

Overall for the quarter, our Blue business sales were up 4.8%, with the 3 largest markets, California, Florida and Texas, each up between 3.8% and 5.4% as Pool maintenance and repair continued to represent a significant majority of our sales.

Year-to-date, our Blue business sales were up 7.4% and really over 8% after adjusting for currency, which is consistent with our expectations.

Our Green base business sales were up 10.7% in the quarter and 7.3% year-to-date, also in line with our expectations.

As noted in the press release, the stronger dollar, especially relative to the euro, adversely affected sales, gross profit, operating profit and earnings per share.

Our sales growth in our Strategic Priority Customer segment retail was up 6.8% year-to-date as the June adjustment negated the weather benefit through May, and represents, primarily, market share gains as there was effectively no inflation impact. Our Strategic Priority Product category, building materials, had 16.7% sales growth year-to-date, primarily driven by market share gains with some recovery in remodeling activity.

Given the sales slowdown witnessed in June and early July, we are cautious about our sales growth projections for the second half. It is this caution that's the primary factor for our reducing the high end of our -- of the EPS range. While certainly the macro economic environment leaves a lot to be desired, the relative year-on-year impact reasserts our expectation that overall industry sales growth will be 3% to 4% for the year, with market share gains driving our outperformance of the industry.

Gross margins being down a bit in the quarter was not a surprise given the inventory gains realized last year from the mid-season price increases. But the competitive market environment, where certain competitors irrationally selling products at prices that only serve to aggravate their precarious financial position, makes no business sense. Fortunately, we have much more to offer than low prices, and are able to grow share by providing a comprehensive suite of services and solutions to help our customers succeed. These programs helped mitigate the competitive market pressures, coupled with our internal disciplines to avoid selling to unprofitable customers.

An item of recent interest, given the difficult economic climate is our European business. It helps for perspective to note that Europe represents 6% of our total sales and 2% of our profits. Despite all the bad press regarding the European economy, our base business sales in Europe were down only 3.6% through June in local currency, versus an 11% increase in the first half of 2011, as we continuously and gradually increase market share.

Just like in North America, our share gains are earned through superior execution based on our investments in talent management, development, technology, marketing, and altogether, combined with the outstanding commitment of our people.

Another item of interest has been our Green business, that for perspective, represents 7% of our total sales and has suffered as that market declined by more than 60% from peak levels with the collapse of new residential constructions. While new construction appears to have stabilized, the progressive actions taken by our team have translated into solid sales and share gains and a solid Green bottom line in 2012.

Mark will fill you in on our expenses, receivables and inventories, but my one word summary of these is, solid.

Our base business addendum also serves to identify that, both in the quarter and year-to-date, our recent acquisitions are coming along well with a modest profit contribution. It's important in these cases to recognize both the members of the acquired entities for their openness to a new culture, as well as those involved with the integration of those entities who commit long hours to ensuring a seamless transition.

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