Pool Corp(POOL)2023-10-19 20:07Financial Data and Key Metrics Changes - Third quarter 2023 sales were $1.5 billion, a 9% decline compared to 2022, but exceeded 2021 sales by $63 million or 4% [3][31] - Gross margin was 29.1%, reflecting a 210 basis point decrease from the prior year due to reduced inventory gains from 2022 [5][17] - Operating income for Q3 2023 was $194 million, down $69 million compared to last year, but represents an 85% improvement over 2019 [20] - Third quarter EPS, excluding ASU, was $3.50, compared to $4.78 in Q3 2022, but still 90% higher than Q3 2019 [41][30] Business Line Data and Key Metrics Changes - Chemical sales increased by 5% in Q3, driven by increased volume, while building material sales declined by 13% [12][13] - Equipment sales declined by 9%, indicating solid demand for maintenance despite weaker new pool construction [14] - Commercial pool product demand remained strong with sales up 10%, while sales to independent retail customers were down 8% [14] - Pinch A Penny franchisees reported a 1% sales growth for the quarter, with solid maintenance product sales but weaker discretionary items [15] Market Data and Key Metrics Changes - Year-round markets saw sales declines: Florida down 5%, Arizona down 8%, California down 10%, and Texas down 11% compared to Q3 last year [10] - Europe experienced a 2% decline in local currency sales, an improvement from previous quarters [16] - The renovation and remodel business is outperforming new pool construction, with builders reporting better performance in remodels [110] Company Strategy and Development Direction - The company continues to focus on organic growth investments, adding new locations and expanding its franchise network [22][24] - The company aims to maintain gross margins around 30% for the full year, with expectations for Q4 margins around 29% [47][30] - The company is committed to providing a best-in-class customer experience and investing in technology tools to enhance service [56][66] Management's Comments on Operating Environment and Future Outlook - The current macroeconomic environment is challenging, but the desirability of swimming pools remains strong [27] - Management expects new pool construction units to finish down 30% in 2023, but anticipates continued renovation activity [26][28] - The company has narrowed its annual earnings guidance to a range of $13.15 to $13.65 per share [30][150] Other Important Information - The company achieved a record $750 million in operating cash flow year-to-date, significantly higher than the previous year [23] - Inventory was reduced by over $216 million year-to-date, surpassing the initial goal [23][42] - The company plans to selectively participate in vendor early buys for strategic inventory management [44] Q&A Session Summary Question: Can you discuss the competitive landscape post pool season? - Management noted that the competitive environment remains similar to past years, with the company taking market share despite overall volume declines [53][54] Question: What are the drivers for EPS growth in a tepid environment? - Management emphasized a focus on growth, margin improvement, and capacity creation as key drivers for EPS [58][71] Question: Is the maintenance and repair business stable? - Management indicated that the maintenance and repair business is predictable and stable, with a backlog of new pools requiring maintenance [90] Question: What is the outlook for new pool construction affordability? - Management stated that the main headwind for new pool construction is affordability, particularly for entry-level pools due to rising interest rates [100][102] Question: How is the renovation and remodel business performing? - Management confirmed that the renovation and remodel business is holding up better than new construction, with builders reporting strong demand [110][111]