POOL Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with the three months ended March 31, 2020. Pool distributes swimming pool, irrigation and related products through 400 sales centers; approximately 93% of Q1 sales came from North America. Results are unaudited and the company cautions that the highly seasonal first quarter is not necessarily indicative of full-year results.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $1,060.7 million | $677.3 million | +57%; base-business sales +51% |
| Gross profit / margin | $301.1 million / 28.4% | $189.6 million / 28.0% | Profit +59%; margin +40 bps |
| Operating income / margin | $129.0 million / 12.2% | $35.6 million / 5.3% | Income +263% |
| Net income | $98.7 million | $30.9 million | +219% |
| Diluted EPS | $2.42 | $0.75 | +223% |
| Operating cash flow | $77.1 million | $19.7 million | +$57.4 million |
Gross-margin expansion reflected purchasing incentives, favorable customer mix and some inflation benefit; supply-chain initiatives also helped, partly offset by acquired businesses and a greater mix of lower-margin big-ticket products. Selling and administrative expense was $172.1 million versus $147.1 million, up 17%; expenses as a share of sales fell to 16.2% from 21.7%. The prior-year period included a $6.9 million goodwill and other asset impairment charge. Interest and other non-operating expense declined to $2.6 million from $4.8 million.
Cash used in investing activities was $9.5 million, including $8.8 million of net property and equipment purchases. Cash used in financing was $75.2 million, including $71.5 million of treasury-stock purchases and $23.3 million of dividends, partly offset by net borrowing activity. Cash and cash equivalents were $27.1 million at quarter-end. Operating cash flow benefited from earnings but included substantial seasonal working-capital movements: receivables used $199.7 million and inventory used $200.2 million, partly funded by a $369.7 million increase in accounts payable.
Balance sheet, debt and liquidity
Total debt was $433.2 million at March 31, 2021, down 26% from $586.1 million a year earlier. Long-term debt, net, was $420.8 million. The company reported $602.3 million available under its $750 million revolving facility, with $142.9 million drawn, and $105.0 million outstanding under its receivables facility. The receivables facility matures November 1, 2021. The company reported an average total leverage ratio of 0.69 against a maximum covenant of 3.25, and a fixed-charge coverage ratio of 9.00 against a minimum of 2.25; it stated it was in compliance with material covenants and expected to remain compliant over the next 12 months.
Changes, outlook and risks
- Management attributed strong growth primarily to elevated residential pool demand and home-centric spending that began during the pandemic and continued into 2021. Sales growth also reflected market-share gains, approximately 6% contribution from recent acquisitions, roughly 3% product-cost inflation, and an estimated 1%–2% lift from Texas winter-storm replacement activity.
- Equipment sales rose 61% and building-material sales rose 34%. Retail-customer sales increased 43%; commercial-customer sales increased 3%. Q1 sales benefited from generally mild U.S. weather, while the February Texas storm damaged pools and increased replacement demand.
- Management raised 2021 diluted EPS guidance to $11.85–$12.60, including $0.10 of year-to-date tax benefits, from prior guidance of $9.12–$9.62. It projected sales growth of 20% or more, product-cost inflation of 4%–5%, and full-year gross margin flat or down by up to 20 basis points. It expected operating-margin improvement exceeding 100 basis points versus 2020, and cash from operations approximately equal to net income.
- Guidance assumes average weather and no adverse resurgence of COVID-19 or related government responses. Management cited uncertain durability of pandemic-related demand, tougher second-half comparisons, industry capacity constraints and possible supply-chain disruption. Weather, housing and economic conditions, supplier relationships, competition and customer behavior are also risks. The business is seasonal, with sales and operating income generally highest in Q2 and Q3.
- Q1 included a $4.0 million ($0.10 per diluted share) tax benefit from share-based compensation accounting, versus $8.0 million ($0.19 per diluted share) a year earlier. The company recorded no significant nonrecurring fair-value measurements in Q1 2021. It reported no material changes to previously disclosed risk factors and did not expect pending ordinary-course litigation to have a material adverse effect.
Important facts for investors to verify
- Whether elevated pandemic-related pool demand and the unusually strong growth rate persist, particularly against tougher second-half comparisons.
- Whether management achieves its raised EPS and sales guidance, including assumptions about weather, COVID-19, inflation and supply availability.
- How seasonal receivables and inventory growth affect cash generation and borrowing needs through the peak selling season.
- The refinancing or renewal status and terms of the receivables facility, which matures in November 2021.
- The extent to which future earnings depend on share-based compensation tax benefits, which management said may fluctuate by quarter.