COVINGTON, La., July 24, 2008 (PRIME NEWSWIRE) -- Pool Corporation (Nasdaq:POOL) today reported results for the second quarter of 2008.
"Our second quarter results reflect continued strong performance in every facet of our business execution," said Manuel Perez de la Mesa, President and CEO. "While sales remain pressured by the unprecedented adverse market conditions impacting our industry, we have improved margin management, controlled expenses and realized market share gains while strengthening our business foundation for the future."
Net sales for the quarter ended June 30, 2008 decreased $33.5 million, or 5%, to $693.0 million, compared to $726.5 million in the second quarter of 2007. Base business sales declined 7% due to reduced new pool and irrigation construction activity. This reduction was partially offset by sales from acquired businesses and an increase in maintenance, repair and replacement product sales. During the quarter, complementary product sales, which are heavily weighted towards new pool construction, were down approximately 12% compared to a 9% increase in the same period in 2007.
Gross profit for the second quarter of 2008 decreased $5.1 million, or 2%, to $202.8 million from $207.9 million in the comparable 2007 period. Gross profit as a percentage of net sales (gross margin) improved to 29.3% in the second quarter of 2008 from 28.6% for the second quarter of 2007. The increase in gross margin is attributable to improved pricing management, a favorable shift in sales mix to products in the higher margin maintenance market and an increase in sales of private label products. This increase in gross margin was partially offset by lower estimated vendor incentives earned compared to the second quarter of 2007 due to lower purchase volumes.
Operating expenses increased $3.3 million, or 3%, to $112.8 million in the second quarter of 2008 from $109.5 million in the second quarter of 2007. This increase was primarily due to operating expenses related to the NPT acquisition. Base business operating expenses decreased 1% quarter over quarter.
Operating income decreased $8.4 million, or 9%, to $90.0 million from $98.4 million. Operating income as a percentage of net sales (operating margin) was 13.0% for the current quarter, down from 13.5% for the second quarter of 2007. Interest expense decreased 14% during the quarter due to a lower weighted average effective interest rate, which was partially offset by higher average debt levels compared to the second quarter of 2007. Earnings per share for the second quarter of 2008 was $1.09 per diluted share on net income of $52.9 million, compared to $1.12 per diluted share on net income of $57.8 million for the second quarter of 2007.
Net sales for the six months ended June 30, 2008 decreased $69.0 million, or 6%, to $1,031.2 million, compared to $1,100.2 million in the comparable 2007 period. Base business sales declined 8% for the first six months of 2008. Complementary product sales for the first half of 2008 were down approximately 13% due to the continued decline in new pool and irrigation construction activity. Gross margin increased 60 basis points to 28.9% in the first half of 2008 from 28.3% for the same period last year.
Operating income for the first six months of 2008 decreased 14% to $92.2 million compared to $107.1 million in the same period last year. Operating margin was 8.9% for the first half of 2008 compared to 9.7% for the first half of 2007. Earnings per share for the first six months of 2008 decreased 11% to $1.02 per diluted share on net income of $49.7 million, compared to $1.14 per diluted share on net income of $59.1 million in the comparable 2007 period.
"Based on results to date and the current external environment, we are narrowing our full year 2008 earnings guidance to a projected range of $1.26 to $1.36 per diluted share compared to our initial projected range of $1.20 to $1.50 per diluted share," said Perez de la Mesa. "In the second half of 2008, we have more modest comparisons and anticipate continued improvement in every facet of our business execution."
On the balance sheet, total net receivables decreased 8% compared to June 30, 2007 due to lower sales. Inventory levels decreased 1% to $385.3 million at June 30, 2008. Excluding acquired inventories of approximately $15.7 million, inventories decreased 5% year over year.
The use of cash in operations decreased $18.9 million to $35.2 million in the first six months of 2008. The decrease in cash used in operations is primarily the result of favorable impacts from changes in working capital balances, which offset the reduction in net income. Adjusted EBITDA (as defined in the addendum to this release) was $96.7 million in the second quarter of 2008 compared to $106.0 million in the second quarter of 2007 and $102.1 million for the six months ended June 30, 2008 compared to $117.6 million for the six months ended June 30, 2007.
Pool Corporation is the largest wholesale distributor of swimming pool and related backyard products. Currently, POOL operates 290 sales centers in North America and Europe, through which it distributes more than 100,000 national brand and private label products to roughly 70,000 wholesale customers. For more information about POOL, please visit www.poolcorp.com.
The Pool Corporation logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=4853
This news release includes "forward-looking" statements that involve risk and uncertainties that are generally identifiable through the use of words such as "believe," "expect," "intend," "plan," "estimate," "project" and similar expressions and include projections of earnings. The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date of this release, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. Actual results may differ materially due to a variety of factors, including the sensitivity of our business to weather conditions, our ability to maintain favorable relationships with suppliers and manufacturers, competition from other leisure product alternatives and mass merchants, changes in the economy and the housing market and other risks detailed in POOL's 2007 Form 10-K and Form 10-Q for the quarter ended March 31, 2008 filed with the Securities and Exchange Commission.
POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------------
2008 2007 2008 2007
--------- --------- ----------- -----------
Net sales $ 692,972 $ 726,472 $ 1,031,187 $ 1,100,178
Cost of sales 490,220 518,550 733,081 788,771
--------- --------- ----------- -----------
Gross profit 202,752 207,922 298,106 311,407
Percent 29.3% 28.6% 28.9% 28.3%
Selling and
administrative
expenses 112,762 109,489 205,919 204,342
--------- --------- ----------- -----------
Operating
income 89,990 98,433 92,187 107,065
Percent 13.0% 13.5% 8.9% 9.7%
Interest
expense, net 5,087 5,897 10,111 10,416
--------- --------- ----------- -----------
Income before
income taxes
and equity
earnings
(losses) 84,903 92,536 82,076 96,649
Provision for
income taxes 32,811 35,728 31,722 37,316
Equity earnings
(losses) in
unconsolidated
investments,
net 783 986 (663) (185)
--------- --------- ----------- -----------
Net income $ 52,875 $ 57,794 $ 49,691 $ 59,148
========= ========= =========== ===========
Earnings per share:
Basic $ 1.11 $ 1.17 $ 1.04 $ 1.19
========= ========= =========== ===========
Diluted $ 1.09 $ 1.12 $ 1.02 $ 1.14
========= ========= =========== ===========
Weighted average
shares
outstanding:
Basic 47,718 49,326 47,628 49,753
========= ========= =========== ===========
Diluted 48,716 51,504 48,499 51,974
========= ========= =========== ===========
Cash dividends
declared per
common share $ 0.13 $ 0.12 $ 0.25 $ 0.225
POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
June 30, June 30, Change
2008 2007 $ %
---------------------------------------------------------------------
Assets
Current assets:
Cash and cash
equivalents $ 26,453 $ 47,171 $ (20,718) (44)%
Receivables, net 75,563 90,892 (15,329) (17)
Receivables
pledged under
receivables
facility 203,091 210,373 (7,282) (3)
Product
inventories, net 385,258 388,364 (3,106) (1)
Prepaid expenses
and other
current assets 11,376 10,705 671 6
Deferred income
taxes 9,139 7,676 1,463 19
-----------------------------------------------------------
Total current
assets 710,880 755,181 (44,301) (6)
Property and
equipment, net 33,892 36,628 (2,736) (7)
Goodwill 167,352 155,231 12,121 8
Other intangible
assets, net 14,480 16,561 (2,081) (13)
Equity interest
investments 32,839 32,156 683 2
Other assets, net 25,612 19,065 6,547 34
-----------------------------------------------------------
Total assets $ 985,055 $ 1,014,822 $ (29,767) (3)%
-----------------------------------------------------------
Liabilities and
stockholders' equity
Current liabilities:
Accounts payable $ 193,663 $ 229,691 $ (36,028) (16)%
Accrued and
other current
liabilities 70,755 62,071 8,684 14
Short-term
financing 121,492 150,000 (28,508) (19)
Current portion
of long-term
debt and other
long-term
liabilities 4,633 4,350 283 7
-----------------------------------------------------------
Total current
liabilities 390,543 446,112 (55,569) (12)
Deferred income
taxes 17,527 15,212 2,315 15
Long-term debt 316,000 272,599 43,401 16
Other long-term
liabilities 6,455 6,519 (64) (1)
-----------------------------------------------------------
Total liabilities 730,525 740,442 (9,917) (1)%
-----------------------------------------------------------
Total stockholders'
equity 254,530 274,380 (19,850) (7)
-----------------------------------------------------------
Total liabilities
and stockholders'
equity $ 985,055 $ 1,014,822 $ (29,767) (3)%
===========================================================
1. Total receivables at June 30, 2008 include approximately $6.7
million of acquired receivables, primarily from our acquisition
of National Pool Tile (NPT). The allowance for doubtful
accounts was $9.7 million at June 30, 2008 and $6.4 million
at June 30, 2007, with $1.1 million of the June 30, 2008 balance
related to the acquisition of NPT.
2. Total product inventories at June 30, 2008 include approximately
$15.7 million of acquired inventories, primarily from our
acquisition of NPT. The inventory reserve was $7.9 million
June 30, 2008 and $5.0 million at June 30, 2007, with $1.2
million of the June 30, 2008 balance related to the acquisition
of NPT.
POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
June 30,
2008 2007 Change
---------------------------------------------------------------------
Operating activities
Net income $ 49,691 $ 59,148 $ (9,457)
Adjustments to reconcile
net income to net cash used
in operating activities:
Depreciation 4,804 4,516 288
Amortization 2,149 2,493 (344)
Share-based compensation 4,269 3,945 324
Excess tax benefits from
share-based compensation (1,652) (6,399) 4,747
Equity losses in
unconsolidated investments 1,158 353 805
Other (1,501) 637 (2,138)
Changes in operating assets
and liabilities, net of
effects of acquisitions:
Receivables (132,735) (147,733) 14,998
Product inventories 8,995 (56,282) 65,277
Accounts payable (2,606) 52,102 (54,708)
Other current assets
and liabilities 32,266 33,145 (879)
---------------------------------------------------------------------
Net cash used in
operating activities (35,162) (54,075) 18,913
Investing activities
Acquisition of businesses,
net of cash acquired (32,840) (2,087) (30,753)
Divestiture of business 724 -- 724
Purchase of property
and equipment, net of
sale proceeds (3,611) (7,606) 3,995
Proceeds from sale of
investment -- 75 (75)
---------------------------------------------------------------------
Net cash used in
investing activities (35,727) (9,618) (26,109)
Financing activities
Proceeds from revolving
line of credit 190,100 215,271 (25,171)
Payments on revolving
line of credit (150,625) (229,329) 78,704
Proceeds from
asset-backed financing 73,335 87,479 (14,144)
Payments on
asset-backed financing (20,170) (11,765) (8,405)
Proceeds from
long-term debt -- 100,000 (100,000)
Payments on long-term
debt and other
long-term liabilities (1,591) (1,547) (44)
Payments of capital
lease obligations (251) (257) 6
Payments of deferred
financing costs (22) (397) 375
Excess tax benefits
from share-based
compensation 1,652 6,399 (4,747)
Issuance of common
stock under stock
option plans 2,289 5,414 (3,125)
Payments of cash
dividends (11,951) (11,185) (766)
Purchases of treasury
stock (1,263) (67,998) 66,735
---------------------------------------------------------------------
Net cash provided by
financing activities 81,503 92,085 (10,582)
Effect of exchange
rate changes on cash 14 2,045 (2,031)
---------------------------------------------------------------------
Change in cash and
cash equivalents 10,628 30,437 (19,809)
Cash and cash
equivalents at
beginning of period 15,825 16,734 (909)
---------------------------------------------------------------------
Cash and cash
equivalents at end
of period $ 26,453 $ 47,171 $ (20,718)
---------------------------------------------------------------------
Addendum
The following table breaks out our consolidated results into the base business component and the excluded components (sales centers excluded from base business):
---------------------------------------------------------------------
(Unaudited) Base Business Excluded
(In thousands) Three Months Ended Three Months Ended
June 30, June 30,
2008 2007 2008 2007
---------------------------------------------------------------------
Net sales $ 656,806 $ 702,785 $ 36,166 $ 23,687
Gross profit 191,219 201,768 11,533 6,154
Gross margin 29.1% 28.7% 31.9% 26.0%
Selling and
administrative
expenses 103,628 104,725 9,134 4,764
Expenses as
a % of net
sales 15.8% 14.9% 25.3% 20.1%
Operating
income 87,591 97,043 2,399 1,390
Operating
margin 13.3% 13.8% 6.6% 5.9%
---------------------------------------------------------------------
---------------------------------------------------------------------
(Unaudited) Total
(In thousands) Three Months Ended
June 30,
2008 2007
---------------------------------------------------------------------
Net sales $ 692,972 $ 726,472
Gross profit 202,752 207,922
Gross margin 29.3% 28.6%
Selling and administrative expenses 112,762 109,489
Expenses as a % of net sales 16.3% 15.1%
Operating income 89,990 98,433
Operating margin 13.0% 13.5%
---------------------------------------------------------------------
---------------------------------------------------------------------
(Unaudited) Base Business Excluded
(In thousands) Six Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
---------------------------------------------------------------------
Net sales $ 989,307 $ 1,074,606 $ 41,880 $ 25,572
Gross profit 284,771 304,787 13,335 6,620
Gross margin 28.8% 28.4% 31.8% 25.9%
Selling and
administrative
expenses 194,229 198,104 11,690 6,238
Expenses as
a % of net
sales 19.6% 18.4% 27.9% 24.4%
Operating
income 90,542 106,683 1,645 382
Operating
margin 9.2% 9.9% 3.9% 1.5%
---------------------------------------------------------------------
---------------------------------------------------------------------
(Unaudited) Total
(In thousands) Six Months Ended
June 30,
2008 2007
---------------------------------------------------------------------
Net sales $1,031,187 $ 1,100,178
Gross profit 298,106 311,407
Gross margin 28.9% 28.3%
Selling and administrative expenses 205,919 204,342
Expenses as a % of net sales 20.0% 18.6%
Operating income 92,187 107,065
Operating margin 8.9% 9.7%
---------------------------------------------------------------------
We exclude the following sales centers from base business results for a period of 15 months (parenthetical numbers for each category indicate the number of sales centers excluded as of June 30, 2008):
* acquired sales centers (10, net of consolidations - see table below); * existing sales centers consolidated with acquired sales centers (6); * closed sales centers (3); * consolidated sales centers in cases where we do not expect to maintain the majority of the existing business (1); and * sales centers opened in new markets (0).
We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales. After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.
In addition to the 20 sales centers excluded from base business as of June 30, 2008, there were 2 new market sales centers excluded until they became base business sales centers in June 2008. We also divested our pool liner fabrication operation in France as of April 2008, and therefore we have excluded the results from base business for the three month period ended June 30, 2007.
We have excluded the following acquisitions from base business for the periods identified:
Net
Acquisition Sales Centers Period
Acquired Date Acquired Excluded
----------- -------------- -------------- -------------------
National
Pool Tile
(NPT) (1) March 2008 9 March - June 2008
Canswim
Pools March 2008 1 March - June 2008
Tor-Lyn,
Limited February 2007 1 February - April
2007 and January -
April 2008
The table below summarizes the changes in our sales centers in the
first half of 2008:
December 31, 2007 281
Acquired, net of consolidations (1) 12
Consolidated (1)
Closed (1)
------
March 31, 2008 291
New locations 1
Consolidation of acquired locations (1) (2)
------
June 30, 2008 290
======
(1) We acquired 15 NPT sales centers and have consolidated 6 of
these with existing sales centers, including 4 in March 2008
and 2 in the second quarter of 2008.
We define Adjusted EBITDA as net income or net loss plus interest expense, income taxes, depreciation, amortization and share-based compensation. Adjusted EBITDA is not a measure of cash flow or liquidity as determined by generally accepted accounting principles (GAAP). We have included Adjusted EBITDA as a supplemental disclosure because we believe that it is widely used by our investors, industry analysts and others as a useful supplemental liquidity measure in conjunction with cash flows provided by or used in operating activities to help investors understand our ability to provide cash flows to fund growth, service debt and pay dividends as well as compare our cash flow generating capacity from year to year.
We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income, net income or loss, cash flows provided by or used in operating, investing, and financing activities or other income statement or cash flow statement line items reported in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.
The table below presents a reconciliation of net income to Adjusted EBITDA.
---------------------------------------------------------------------
(Unaudited) Three Months Ended Six Months Ended
(In thousands) June 30, June 30,
2008 2007 2008 2007
---------------------------------------------------------------------
Net income $ 52,875 $ 57,794 $ 49,691 $ 59,148
Add:
Interest expense,
net 5,087 5,897 10,111 10,416
Provision for
income taxes 32,811 35,728 31,722 37,316
Income tax
expense (benefit)
on equity
(earnings) losses 507 648 (495) (168)
Share-based
compensation 1,999 2,402 4,269 3,945
Depreciation 2,417 2,332 4,804 4,516
Amortization (1) 996 1,213 1,949 2,383
---------------------------------------------------------------------
Adjusted EBITDA $96,692 $106,014 $102,051 $117,556
---------------------------------------------------------------------
(1) Excludes amortization included in interest expense, net
The table below presents a reconciliation of Adjusted EBITDA to cash
used in operating activities.
---------------------------------------------------------------------
(Unaudited) Three Months Ended Six Months Ended
(In thousands) June 30, June 30,
2008 2007 2008 2007
---------------------------------------------------------------------
Adjusted EBITDA $ 96,692 $106,014 $102,051 $117,556
Add:
Interest expense,
net(1) (4,998) (5,837) (9,911) (10,306)
Provision for
income taxes (32,811) (35,728) (31,722) (37,316)
Income tax
(expense)
benefit on
equity
(earnings)
losses (507) (648) 495 168
Excess tax
benefits on
share-based
compensation (112) (3,565) (1,652) (6,399)
Equity (earnings)
losses in
unconsolidated
investments, net (1,288) (1,634) 1,158 353
Other 1,111 2,557 (1,501) 637
Change in
operating assets
and liabilities (77,809) (101,927) (94,080) (118,768)
---------------------------------------------------------------------
Net cash used in
operating
activities $(19,722) $(40,768) $(35,162) $(54,075)
---------------------------------------------------------------------
(1) Excludes amortization of deferred financing costs of $89
and $60 for the three months ended June 30, 2008 and June 30,
2007, respectively, and $200 and $110 for the six months
ended June 30, 2008 and June 30, 2007, respectively. This
non-cash expense is included in interest expense, net on the
Consolidated Statements of Income.