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.