COVINGTON, La., Feb 13, 2020 (GLOBE NEWSWIRE via COMTEX) -- Highlights include:
Record annual sales of $3.2 billion for 2019, up 7% from 2018
2019 operating margin of 10.7%, up 20 bps from 2018, with base business operating margin up 40 bps
Record 2019 diluted EPS of $6.40 (including a $0.57 tax benefit), an increase of 14% over 2018
Cash provided by operations of $298.8 million, an improvement of $180.1 million from 2018
2020 diluted EPS guidance range of $6.47 - $6.77, including an estimated $0.06 tax benefit; excluding the tax benefit in both years, the guidance range is an increase of 10% - 15% over 2019
COVINGTON, La., Feb. 13, 2020 (GLOBE NEWSWIRE) -- Pool Corporation (nasdaq/gsm:POOL) today announced fourth quarter and full year 2019 results.
"2019 was an exciting year for POOLCORP as we achieved record sales, operating margin and earnings per share. We also achieved a record return on invested capital of 29.3%. Our focus on market share gains and capacity creation allowed us to capitalize on our competitive advantages and deliver solid results, particularly considering the impact of weather on our results in the first half of the year," commented Peter D. Arvan, president and CEO.
Net sales increased 7% to a record high of $3.2 billion for the year ended December 31, 2019 compared to $3.0 billion in 2018. Base business sales increased 5% driven by our continued expansion in commercial and building material products and healthy demand for discretionary products, such as construction materials and products used in the remodel and replacement of in-ground pools. We achieved these favorable results despite inclement weather throughout much of the first half of the year.
Gross profit reached a record $924.9 million for the year ended December 31, 2019, a 6% increase over gross profit of $870.2 million in 2018. Gross margin was relatively flat year over year at 28.9% in 2019 compared to 29.0% in 2018, with base business gross margin at 29.0% in both years.
Selling and administrative expenses (operating expenses) increased 5% to $583.7 million in 2019, up from $556.3 million in 2018, with base business operating expenses up 3% over 2018. The increase in base business operating expenses was primarily attributable to higher growth-driven labor and freight expenses, as well as greater facility-related costs.
Operating income for the year increased 9% to $341.2 million, up from $313.9 million in 2018. Operating margin increased to 10.7% in 2019 compared to 10.5% in 2018, while base business operating margin improved 40 basis points to 10.9% in 2019.
We recorded a $23.5 million, or $0.57 per diluted share, benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, for the year ended December 31, 2019 compared to a benefit of $15.3 million, or $0.36 per diluted share, realized in 2018.
Net income increased 12% to a record $261.6 million in 2019 compared to $234.5 million in 2018. Earnings per share increased 14% to a record $6.40 per diluted share compared to $5.62 per diluted share in 2018. Excluding the impact from ASU 2016-09 in both periods, earnings per diluted share increased 11% to $5.83 in 2019 compared to $5.26 in 2018. Adjusted EBITDA (as defined in the addendum to this release) increased 8% to $382.2 million in 2019 compared to $353.4 million in 2018 and was 11.9% of net sales in 2019 compared to 11.8% of net sales in 2018.
On the balance sheet at December 31, 2019, total net receivables, including pledged receivables, increased 9% compared to 2018, driven by our December sales growth. Inventory levels grew 4% to $702.3 million compared to $672.6 million in 2018, reflecting inventory from acquired businesses of $10.3 million and normal business growth. Total debt outstanding decreased $155.4 million, or 23%, compared to last year's balance.
Cash provided by operations was $298.8 million in 2019, compared to $118.7 million in 2018, an improvement of $180.1 million. The strategic inventory purchases that we made in the latter half of 2018 negatively impacted our 2018 cash flows due to timing differences that reversed in 2019. Our return on invested capital (as defined in the addendum to this release) for 2019 was 29.3% compared to 27.7% in 2018.
Net sales increased 7% to $582.2 million in the fourth quarter of 2019 compared to $543.1 million in the fourth quarter of 2018. Gross margin decreased 170 basis points to 27.8% in the fourth quarter of 2019 compared to the fourth quarter of 2018. Gross margin in the fourth quarter of 2018 reflected benefits from strategic inventory purchases ahead of vendor price increases resulting in a comparative decline in the fourth quarter of 2019. Operating income in the fourth quarter of 2019 decreased 1% to $25.8 million compared to $26.0 million in the same period of 2018. Operating margin decreased 40 basis points in the fourth quarter, including a 10 basis point decrease in base business operating margin. We recorded a $2.4 million benefit from ASU 2016-09 in the fourth quarter of 2019 compared to a benefit of $1.4 million realized in the fourth quarter of 2018. Net income in the fourth quarter of 2019 was $18.0 million compared to $16.8 million in the comparable 2018 period. Earnings per diluted share was $0.44 in the fourth quarter of 2019, or $0.38 excluding the $0.06 per diluted share impact from ASU 2016-09, compared to $0.41, or $0.37 excluding the $0.04 impact from ASU 2016-09, for the same period in 2018.
"In 2020, we will continue to focus on our operating priorities and making strategic investments that benefit our customers, employees and shareholders. We believe that our competitive advantages continue to grow and underlying demand throughout our industry remains strong. Based on these factors, we expect earnings for 2020 will be in the range of $6.47 to $6.77 per diluted share, including an estimated $0.06 favorable impact from ASU 2016-09," said Arvan.
|2020 Guidance Range|
|Less: tax benefit||0.57||0.06||0.06|
|Diluted EPS, excluding tax benefit||$||5.83||$||6.41||$||6.71|
Based on our December 31, 2019 stock price, we estimate that we have approximately $2.3 million in unrealized excess tax benefits related to stock options that will expire and restricted stock awards that will vest in the first quarter of 2020, adding $0.06 in diluted earnings per share in that period. We have included the estimated first quarter benefit in our annual earnings guidance; however, additional tax benefits could be recognized related to stock option exercises in 2020 from grants that expire in years after 2020, for which we have not included any expected benefits.
POOLCORP is the world's largest wholesale distributor of swimming pool and related backyard products. As of December 31, 2019, POOLCORP operates 373 sales centers in North America, Europe and Australia, through which it distributes more than 200,000 national brand and private label products to roughly 120,000 wholesale customers. For more information, please visit www.poolcorp.com .
This news release includes "forward-looking" statements that involve risks and uncertainties that are generally identifiable through the use of words such as "believe," "expect," "intend," "plan," "estimate," "project," "should" and similar expressions and include projections of earnings. The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date of this release, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. Actual results may differ materially due to a variety of factors, including the sensitivity of our business to weather conditions, changes in the economy and the housing market, our ability to maintain favorable relationships with suppliers and manufacturers, competition from other leisure product alternatives and mass merchants, excess tax benefits or deficiencies recognized under ASU 2016-09 and other risks detailed in POOLCORP's 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) as updated by POOLCORP's subsequent filings with the SEC.
Curtis J. Scheel
Director of Investor Relations
Consolidated Statements of Income
(In thousands, except per share data)
|Three Months Ended||Year Ended|
|December 31,||December 31,|
|Cost of sales||420,184||382,640||2,274,592||2,127,924|
|Selling and administrative expenses||136,252||134,472||583,679||556,284|
|Interest and other non-operating expenses, net||5,234||6,448||23,772||20,896|
|Income before income taxes and equity earnings||20,564||19,522||317,474||292,993|
|Provision for income taxes||2,592||2,786||56,161||58,774|
|Equity earnings in unconsolidated investments, net||52||75||262||242|
|Earnings per share:|
|Weighted average shares outstanding:|
|Cash dividends declared per common share||$||0.55||$||0.45||$||2.10||$||1.72|
[(1) ] Derived from audited financial statements.
Condensed Consolidated Balance Sheets
|December 31,||December 31,||Change|
|Cash and cash equivalents||$||28,583||$||16,358||$||12,225||75||%|
|Receivables, net [(2)]||76,648||69,493||7,155||10|
|Receivables pledged under receivables facility||149,891||138,308||11,583||8|
|Product inventories, net [(3)]||702,274||672,579||29,695||4|
|Prepaid expenses and other current assets [(6)]||16,172||18,506||(2,334||)||(13||)|
|Total current assets||973,568||915,244||58,324||6|
|Property and equipment, net||112,246||106,964||5,282||5|
|Other intangible assets, net||11,038||12,004||(966||)||(8||)|
|Equity interest investments||1,227||1,213||14||1|
|Operating lease assets [(4), (5), (6)]||176,689||--||176,689||100|
|Liabilities and stockholders' equity|
|Accounts payable [(5)]||$||261,963||$||237,835||$||24,128||10||%|
|Accrued expenses and other current liabilities||60,813||58,607||2,206||4|
|Short-term borrowings and current portion of long-term debt||11,745||9,168||2,577||28|
|Current operating lease liabilities [(4)]||56,325||--||56,325||100|
|Total current liabilities||390,846||305,610||85,236||28|
|Deferred income taxes||32,598||29,399||3,199||11|
|Long-term debt, net||499,662||657,593||(157,931||)||(24||)|
|Other long-term liabilities||27,970||24,679||3,291||13|
|Non-current operating lease liabilities [(4)]||122,010||--||122,010||100|
|Total stockholders' equity||410,180||223,590||186,590||83|
|Total liabilities and stockholders' equity||$||1,483,266||$||1,240,871||$||242,395||20||%|
|(1)||Derived from audited financial statements.|
|(2)||The allowance for doubtful accounts was $5.5 million at December 31, 2019 and $6.2 million at December 31, 2018.|
|(3)||The inventory reserve was $9.0 million at December 31, 2019 and $7.7 million at December 31, 2018.|
|(4)||We adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019. Upon adoption, we recorded operating lease assets and operating lease liabilities based on the present value of future lease obligations. We applied the practical expedient available in this guidance, which does not require the restatement of prior year balances.|
|(5)||Due to ASU 2016-02, our straight-line rent liability of $5.1 million, reported in Accounts payable under previous accounting guidance, offsets our Operating lease assets.|
|(6)||As of December 31, 2019, we presented pre-paid rent of $4.8 million in Operating lease assets as required under the new guidance (presented in Prepaid expenses and other current assets as of December 31, 2018).|
Condensed Consolidated Statements of Cash Flows
|Adjustments to reconcile net income to net cash provided by operating activities:|
|Equity earnings in unconsolidated investments, net||(262||)||(242||)||(20||)|
|Net losses on foreign currency transactions||1,347||560||787|
|Changes in operating assets and liabilities, net of effects of acquisitions:|
|Prepaid expenses and other assets||(4,218||)||1,018||(5,236||)|
|Accrued expenses and other current liabilities||3,033||(3,750||)||6,783|
|Net cash provided by operating activities||298,776||118,656||180,120|
|Acquisition of businesses, net of cash acquired||(8,901||)||(2,578||)||(6,323||)|
|Purchase of property and equipment, net of sale proceeds||(33,362||)||(31,580||)||(1,782||)|
|Net cash used in investing activities||(42,263||)||(34,158||)||(8,105||)|
|Proceeds from revolving line of credit||1,066,529||1,138,195||(71,666||)|
|Payments on revolving line of credit||(1,415,988||)||(998,503||)||(417,485||)|
|Proceeds from asset-backed financing||189,000||198,400||(9,400||)|
|Payments on asset-backed financing||(182,500||)||(189,900||)||7,400|
|Proceeds from term facility||185,000||--||185,000|
|Proceeds from short-term borrowings and current portion of long-term debt||30,863||17,127||13,736|
|Payments on short-term borrowings and current portion of long-term debt||(28,286||)||(18,793||)||(9,493||)|
|Payments of deferred acquisition consideration||(312||)||(661||)||349|
|Payments of deferred financing costs||(406||)||(106||)||(300||)|
|Proceeds from stock issued under share-based compensation plans||18,574||13,569||5,005|
|Payments of cash dividends||(83,772||)||(69,430||)||(14,342||)|
|Purchases of treasury stock||(23,188||)||(187,469||)||164,281|
|Net cash used in financing activities||(244,486||)||(97,571||)||(146,915||)|
|Effect of exchange rate changes on cash and cash equivalents||198||(509||)||707|
|Change in cash and cash equivalents||12,225||(13,582||)||25,807|
|Cash and cash equivalents at beginning of period||16,358||29,940||(13,582||)|
|Cash and cash equivalents at end of period||$||28,583||$||16,358||$||12,225|
[(1) ] Derived from audited financial statements.
The following tables break out our consolidated results into the base business component and the excluded components (sales centers excluded from base business):
|(in thousands)||Three Months Ended||Three Months Ended||Three Months Ended|
|December 31,||December 31,||December 31,|
|Expenses as a % of net sales||23.2||%||24.7||%||44.7||%||28.6||%||23.4||%||24.8||%|
|Operating income (loss)||27,352||26,359||(1,554||)||(389||)||25,798||25,970|
|(in thousands)||Year Ended||Year Ended||Year Ended|
|December 31,||December 31,||December 31,|
|Expenses as a % of net sales||18.1||%||18.5||%||30.1||%||33.9||%||18.2||%||18.6||%|
|Operating income (loss)||343,222||315,139||(1,976||)||(1,250||)||341,246||313,889|
We have excluded the results of the following acquisitions from base business for the periods identified:
|W.W. Adcock, Inc. [ (1)]||January 2019||4||January - December 2019|
|Turf & Garden, Inc. [(1)]||November 2018||4||
January - December 2019 and
November - December 2018
|Tore Pty. Ltd. (Pool Power) [(1)]||January 2018||1||
January - April 2019 and
January - April 2018
|Chem Quip, Inc. [(1)]||December 2017||5||
January - March 2019 and
January - March 2018
January - February 2019 and
January - February 2018
[(1) ] We acquired certain distribution assets of each of these companies.
When calculating our base business results, we exclude sales centers that are acquired, closed or opened in new markets for a period of 15 months. We also exclude consolidated sales centers when we do not expect to maintain the majority of the existing business and existing sales centers that are consolidated with acquired sales centers.
We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales. After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.
The table below summarizes the changes in our sales centers during 2019.
|December 31, 2018||364|
|December 31, 2019||373|
We define Adjusted EBITDA as net income or net loss plus interest expense, income taxes, depreciation, amortization, share-based compensation, goodwill and other non-cash impairments and equity earnings or losses in unconsolidated investments. Adjusted EBITDA is not a measure of cash flow or liquidity as determined by generally accepted accounting principles (GAAP). We have included Adjusted EBITDA as a supplemental disclosure because we believe that it is widely used by our investors, industry analysts and others as a useful supplemental liquidity measure in conjunction with cash flows provided by or used in operating activities to help investors understand our ability to provide cash flows to fund growth, service debt and pay dividends as well as compare our cash flow generating capacity from year to year.
We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, cash flows provided by or used in operating, investing and financing activities or other income statement or cash flow statement line items reported in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.
The table below presents a reconciliation of Adjusted EBITDA to net cash provided by operating activities. Please see page 6 for our Condensed Consolidated Statements of Cash Flows.
|(Unaudited)||Year Ended December 31,|
|Interest and other non-operating expenses, net of interest income [(1)]||(21,992||)||(19,645||)|
|Provision for income taxes||(56,161||)||(58,774||)|
|Net losses on foreign currency transactions||1,347||560|
|Change in operating assets and liabilities||(14,181||)||(165,840||)|
|Net cash provided by operating activities||$||298,776||$||118,656|
[(1) ] Shown net of losses on foreign currency transactions.
The table below presents a reconciliation of net income to Adjusted EBITDA.
|(Unaudited)||Year Ended December 31,|
|Interest and other non-operating expenses [(1)]||22,425||20,336|
|Provision for income taxes||56,161||58,774|
|Equity earnings in unconsolidated investments, net||(262||)||(242||)|
|(1)||Shown net of interest income and net of losses on foreign currency transactions and includes amortization of deferred financing costs as discussed below.|
|(2)||Excludes amortization of deferred financing costs of $433 for 2019 and $691 for 2018. This non-cash expense is included in Interest and other non-operating expenses, net on the Consolidated Statements of Income.|
Return on Invested Capital
We calculate Return on Invested Capital (ROIC) using trailing four quarter results. We define ROIC as Net income adjusted for Interest and other non-operating expenses, net (net of taxes at the effective tax rate), divided by the sum of average Long-term debt, net, average Short-term borrowings and the current portion of long-term debt and average Total stockholders' equity from our financial statements as filed with the SEC. We have included ROIC as a supplemental disclosure because we believe that it may be used by our investors, industry analysts and others as a measure of the efficiency and effectiveness of our use of capital.
ROIC is not a measure of financial performance under GAAP. We believe ROIC should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, cash flows provided by or used in operating, investing and financing activities or other income statement, balance sheet or cash flow statement line items reported in accordance with GAAP. Other companies may calculate ROIC differently than we do, which may limit its usefulness as a comparative measure.
The table below presents our calculation of ROIC at December 31, 2019 and 2018.
|(Unaudited)||Year Ended December 31,|
|Numerator (trailing four quarters total):|
|Interest and other non-operating expenses, net||23,772||20,896|
Less: taxes on Interest and other non-operating expenses, net at 17.7%
and 20.1%, respectively
|Denominator (average of trailing four quarters):|
|Long-term debt, net||$||595,247||$||602,984|
|Short-term borrowings and current portion of long-term debt||17,323||15,190|
|Total stockholders' equity||346,049||289,979|
|Return on invested capital||29.3||%||27.7||%|
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