PoolCorp (POOL) Q4 2017 earnings summary

Executive summary

• Fifth consecutive year of record sales and earnings; 2017 sales grew 8%, diluted EPS rose 15% excluding tax reform and ASU 2016-09 benefits, and after-tax return on invested capital reached 25%.

• Operational execution lifted operating margin, while cash from operations was $175.3 million and capital returned through dividends and repurchases remained substantial.

• Growth reflected remodeling, equipment replacement, building materials, commercial products, market-share gains and acquisitions despite major storms in Texas and Florida.

Financial highlights

• Net sales were $2,788.2 million, up 8%; base-business sales grew 7% despite one fewer selling day.

• Gross profit rose 9% to $805.3 million; gross margin increased 10 bps to 28.9%.

• Operating income increased 11% to $284.4 million; operating margin expanded to 10.2% from 10.0%.

• Net income attributable to Pool Corporation rose 29% to $191.6 million; diluted EPS increased 30% to $4.51, or 15% excluding the $0.28 tax-reform and $0.24 ASU benefits.

• Cash provided by operations was $175.3 million; year-end total debt was $519.7 million, up 19% YoY.

Outlook and guidance

• 2018 sales growth forecast at 6%-7%, assuming normal weather, 1%-2% product cost inflation, continued replacement/remodeling and ~1% contribution from 2017 acquisitions.

• 2018 diluted EPS guidance is $5.36-$5.61, including an estimated $0.13 favorable ASU 2016-09 impact; expected effective tax rate is ~25.5%, excluding ASU effects.

• Gross margin expected to remain relatively neutral; operating expenses projected to grow at ~60% of gross-profit growth.

• Operating cash flow expected to approximate net income; planned share repurchases of $100-$150 million, subject to Board authorization.

• Plan to open 4-6 sales centers in 2018 and pursue selective acquisitions as opportunities arise.