A Member of Pat McKeough’s Inner Circle recently asked for his advice on Pool Corporation, a wholesale company involved with swimming pool and related products distribution.
Pat likes the company’s dominant market position and continued track record of rising revenues and earnings. The balance sheet is also strong and the firm’s prospects remain positive.
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Pool Corporation (Symbol POOL on Nasdaq; www.poolcorp.com), is the world’s largest wholesale distributor of swimming pool and related backyard products.
The company operates 415 sales centres across North America, Europe and Australia. They distribute more than 200,000 national brand and private label products to roughly 120,000 wholesale customers. Pool Corp. first sold shares to the public in 1995.
Pool Corp.’s selection of products and services includes:
- Pool maintenance—including a wide array of chemicals, supplies and repair parts
- Pool construction and renovation—such as pool pumps, filters, heaters and cleaners, pool surfacing materials, pool tile, coping, deck equipment, pool control systems, lighting and above-ground pool kits
- Irrigation and landscape—including a complete line of commercial and residential irrigation products, landscape maintenance and equipment products and parts
- Outdoor living—such as outdoor lighting, grills, outdoor kitchen components and walkway and fencing products
Between 2017 and 2020, overall revenue rose 41.2%, from $2.79 billion in 2017 to $3.94 billion in 2020. Revenue then jumped 34.5% in 2021 on surging demand for pools during the second year of the pandemic, to $5.30 billion.
Earnings climbed 119.6% between 2017 and 2020, from $167.0 million, or $3.99 a share, to $366.7 million, or $8.97. Alongside revenue, earnings then jumped 77.4% in 2021, to $650.6 million, or $15.97 a share.
Inner Circle: Pool Corporation’s revenue continues to grow despite weaker consumer spending
The pandemic was very good for Pool Corp. Homeowners—looking for relief from COVID-19 lockdowns and with extra cash thanks to rising home prices and government stimulus payments—rushed to install pools in their backyards. Approximately 117,000 were installed industrywide in 2021, alone; that was up 50% from 2019, before COVID-19.
As a result, Pool Corp.’s stock gained 52% in 2021. However, in 2022, the shares fell 15%.
Despite weaker overall consumer spending this year, failing to maintain a swimming pool is not an option for most homeowners. They don’t generally let their pools turn cloudy or green, and pool owners rarely choose to fill in a pool.
In the three months ended September 30, 2022, the company’s revenue increased by 14.4%, to a quarterly record $1.62 billion from $1.41 billion a year earlier.
Sales benefited from price increases, as well as increased demand for higher value products and customizations for new pools and remodeling projects. That’s despite a moderation in the issuance of new pool permits. Sales showed strength in Sun Belt markets, while sales in northern markets were limited by less favourable weather conditions.
Excluding one-time items, Pool Corp. earned $4.76 a share in the latest quarter. That’s up 7.2% from $4.44.
At the end of the quarter, the company had long-term debt of $1.5 billion. That’s a low 10% of its market cap. The stock yields 1.2%.
Pool Corp.’s outlook remains positive. The company is the world’s largest wholesale distributor of swimming-pool supplies—as big as its top 50 competitors combined—with a dominant market share and some 80% of its business coming from recurring services such as repair and maintenance for existing customers. Those revenue streams will continue.
Meanwhile, current pool owners continue to add to their pools—this includes adding connected and smart technology products like automation, variable speed pumps, robotic cleaners and customizations.
Recommendation in Pat’s Inner Circle: Pool Corporation is a hold.