PoolCorp (POOL) Q4 2019 earnings summary

Executive summary

• Seventh consecutive year of record sales and earnings: 2019 net sales rose 7% to $3.20B, operating income rose 9% to $341.2M and diluted EPS increased 14% to $6.40.

• Strong execution and favorable second-half weather offset a wet, cool first half; operating cash flow was $298.8M and ROIC reached a record 29.3%.

• Management expects continued growth, supported by remodeling and replacement demand, product innovation and market expansion; labor constraints remain a brake on new pool construction.

Financial highlights

• Net sales increased 7% to $3,199.5M; base-business sales grew 5%.

• Gross profit rose 6% to $924.9M; gross margin was 28.9% versus 29.0% in 2018.

• Operating income increased 9% to $341.2M; operating margin expanded to 10.7% from 10.5%.

• Net income rose 12% to $261.6M; diluted EPS increased 14% to $6.40. Excluding ASU 2016-09 benefits, adjusted diluted EPS grew 11% to $5.83 from $5.26.

• Cash from operations was $298.8M, up from $118.7M; 2018 cash flow was reduced by strategic inventory purchases that reversed in 2019.

Outlook and guidance

• 2020 sales growth expected at 6%–8%, assuming normal weather, continued market-share gains, growth in remodeling and construction, and product-cost inflation of 1%–2%.

• 2020 diluted EPS guidance is $6.47–$6.77, including an estimated $0.06 ASU 2016-09 benefit in Q1; effective tax rate expected at 25.5% excluding ASU 2016-09.

• Gross margin trends expected to be relatively neutral for FY 2020; operating expense growth expected at ~60% of gross profit growth.

• Cash from operations is expected to approximate net income; planned share repurchases are $150M–$200M.

• Five-year annual organic revenue growth expectation remains 6%–8%; plans include 8–10 new sales centers in 2020 and selective acquisitions.