Pool Corp(POOL) - 2024 Q3 - Quarterly Report

Financial Performance - Net sales decreased 3% in Q3 2024 to $1.4 billion compared to$ 1.5 billion in Q3 2023, with strong sales of non-discretionary maintenance products offset by soft sales in pool construction and discretionary products [59]. - Gross profit decreased 3% to $416.4 million in Q3 2024, maintaining a gross margin of 29.1% for both Q3 2024 and Q3 2023 [60]. - Operating income decreased 9% to$ 176.4 million in Q3 2024, resulting in an operating margin of 12.3%, down from 13.2% in Q3 2023 [62]. - Net income decreased 9% to $125.7 million in Q3 2024, with earnings per diluted share down 7% to$ 3.27 compared to $3.51 in Q3 2023 [64]. - For the first nine months of 2024, net sales were$ 4,323.5 million, a decline of 5% from $4,538.5 million in the same period of 2023 [91]. - Gross profit for the first nine months of 2024 was$ 1,285.1 million, down 6% from $1,366.3 million in the first nine months of 2023, with gross margin decreasing to 29.7% from 30.1% [96]. - Net income for the first nine months of 2024 decreased by 16% to$ 397.0 million, with diluted earnings per share dropping 14% to $10.30 [100]. Debt and Cash Flow - Total debt outstanding was$ 923.8 million at September 30, 2024, down $110.1 million from the previous year, reflecting the use of operating cash flows to reduce debt [69]. - Net cash provided by operating activities decreased to$ 488.6 million for the first nine months of 2024 from $750.0 million in the same period of 2023, impacted by prior year inventory reduction efforts [125]. - Net cash used in financing activities was$ 411.8 million for the first nine months of 2024, a decrease from $656.8 million in the same period of 2023, primarily due to lower net debt payments [127]. - The average total leverage ratio as of September 30, 2024, was 1.41, below the maximum requirement of 3.25 [137]. - The fixed charge coverage ratio was 5.22 as of September 30, 2024, exceeding the minimum requirement of 2.25 [138]. Inventory and Sales - Inventory levels were reduced by$ 78.8 million, or 6%, to $1.2 billion compared to September 30, 2023, with inventory turns increasing to 2.8 times [68]. - Sales of chemicals increased 2% compared to Q3 2023, representing 17% of net sales, while sales of building materials decreased 9% and accounted for approximately 11% of net sales in Q3 2024 [82]. - Sales to commercial swimming pool customers increased by 7% in Q3 2024, representing approximately 5% of total net sales for the quarter [84]. - Sales to retail customers decreased by 4% in the first nine months of 2024, while sales to commercial customers increased by 8% [94]. Operating Expenses - Operating expenses increased by 2% to$ 240.1 million in Q3 2024 compared to $234.3 million in Q3 2023, with operating expenses as a percentage of net sales rising to 16.8% from 15.9% [86]. - Selling and administrative expenses for the first nine months of 2024 rose by 4% to$ 728.6 million compared to $699.0 million in the same period of 2023 [97]. Future Projections - The company expects full-year 2024 sales to decline by approximately 5% from 2023, driven by a 15-20% decline in volumes of discretionary products for pool construction [70]. - Projected diluted EPS for 2024 is in the range of$ 11.06 to $11.46, including a year-to-date tax benefit of$ 0.21 [73]. - Capital expenditures were 1.1% of net sales in 2023, with projections for 2024 to be approximately 1.0% to 1.5% of net sales [124]. Tax and Interest Rates - The effective income tax rate for Q3 2024 was 23.4%, slightly lower than 23.8% in Q3 2023, with a tax benefit from ASU 2016-09 recorded in both periods [88]. - Interest and other non-operating expenses, net for Q3 2024 decreased by $1.2 million due to a reduction in average debt, with a weighted average effective interest rate of 5.2% [87]. - As of September 30, 2024, the company had two interest rate swap contracts and one forward-starting interest rate swap contract to convert variable interest rates to fixed rates [143]. - There have been no material changes in the company's exposure to interest rate risk during the nine months ended September 30, 2024 [148]. Compliance and Governance - The company was in compliance with all material covenants and financial ratio requirements under its Credit Facility, Term Facility, and Receivables Facility as of September 30, 2024 [144]. - The company may declare and pay quarterly dividends as long as the Average Total Leverage Ratio is less than 3.25 to 1.00 [139]. - The company may repurchase shares of its common stock provided the Average Total Leverage Ratio is less than 3.25 to 1.00 [139]. - The company has$ 497.0 million available for share repurchase under its current Board-approved program and plans to fund these repurchases with cash from operations and borrowings [146]. - The company believes it has adequate capital availability to fund present operations and finance any potential acquisitions [145]. - The company continually evaluates potential acquisitions and holds discussions with candidates for suitable opportunities [145]. - Non-compliance with financial covenants could result in higher interest rates or acceleration of debt maturities [140]. Market Conditions - Weather conditions in Q3 2024 had a relatively neutral impact on overall business performance, with mixed effects across different regions [114]. - There have been no material changes in the company's exposure to currency risk during the nine months ended September 30, 2024 [149].