POOL Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. POOL distributes swimming pool supplies and related products through 408 sales centers across North America, Europe and Australia; approximately 93% of first-half sales came from North America.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $1.788 billion | $1.281 billion | $2.849 billion | $1.958 billion |
| Gross profit | $551.7 million | $373.5 million | $852.8 million | $563.1 million |
| Gross margin | 30.9% | 29.2% | 29.9% | 28.8% |
| Operating income | $338.6 million | $205.9 million | $467.6 million | $241.4 million |
| Operating margin | 18.9% | 16.1% | 16.4% | 12.3% |
| Net income | $259.7 million | $157.6 million | $358.4 million | $188.5 million |
| Diluted EPS | $6.37 | $3.87 | $8.78 | $4.62 |
Q2 sales rose 40% (base business +32%); first-half sales rose 45% (base business +38%). Q2 net income and diluted EPS each increased 65% year over year. Management cited strong demand for pool maintenance, equipment, construction and refurbishment, market-share gains, recent acquisitions and inflation-related product cost increases. Improved supply-chain execution, vendor program rates and product/customer mix supported margin expansion. Selling and administrative expense rose 27% in Q2, but declined to 11.9% of sales from 13.1% as sales growth outpaced costs.
For the first half, operating cash flow was $187.2 million, down from $221.2 million; management attributed the decline mainly to inventory investment and higher income tax payments. Investing cash outflow was $32.5 million; financing cash outflow was $131.1 million. Cash was $58.5 million at June 30. Total debt was $423.1 million, down 4% year over year. The company reported $592.8 million available under its $750 million revolving facility and said it was compliant with material debt covenants. Average total leverage ratio was 0.53, versus a 3.25 maximum covenant.
Changes, outlook and risks
- Management raised 2021 diluted EPS guidance to $13.75–$14.25, including $0.29 per share of tax benefits recognized through June 30; prior guidance was $11.85–$12.60. The outlook assumes average weather and no adverse resurgence of COVID-19 or related government responses.
- 2021 net sales growth is projected to exceed 25%. Management sees potential for full-year gross-margin improvement of 100 basis points and operating-margin improvement of 250–300 basis points versus 2020. Expected inflationary product cost increases are 5%–6%, with a larger effect anticipated in the second half.
- Management expects 2021 operating cash flow to approximate net income, capital expenditures near the historical average of 1.0% of sales, and continued cash use for dividends and opportunistic share repurchases. The Board authorized an additional $450 million for repurchases in May; $528.3 million remained available as of July 26.
- Demand benefited from pandemic-related home investment, which may not persist. Supply constraints in high-demand product categories, weather, housing and economic conditions, supplier relationships, competition, COVID-19 developments and customer behavior could affect results. The business is highly seasonal, with sales and operating income generally highest in Q2 and Q3.
- Q2 included a $7.7 million tax benefit from employee share-based compensation accounting, or $0.19 per diluted share. First-half 2020 included $6.9 million of goodwill and other asset impairment; no comparable impairment was recorded in first-half 2021. Acquisitions contributed $11.0 million of Q2 2021 operating income.
Key facts for investors to verify
- Whether elevated pandemic-era demand and the strong customer project backlog continue into the second half and beyond.
- Whether supply availability and inflation pass-through support the projected sales and margin improvements.
- How seasonal working-capital needs, inventory growth and collections affect cash generation; first-half operating cash flow declined despite higher earnings.
- Debt-facility refinancing and renewal timelines: the revolving credit facility matures September 2022 and the receivables facility November 2021.
- How much future EPS reflects operating performance versus share-based compensation tax benefits, and whether repurchases and dividends remain within cash-flow and covenant capacity.