POOL Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Pool Corporation distributes swimming-pool and outdoor-living products through 416 sales centers across North America, Europe and Australia; approximately 95% of first-half sales came from North America.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net sales | $2.056 billion | $1.788 billion | $3.468 billion | $2.849 billion |
| Gross profit | $666.8 million | $551.7 million | $1.114 billion | $852.8 million |
| Gross margin | 32.4% | 30.9% | 32.1% | 29.9% |
| Operating income | $418.9 million | $338.6 million | $654.6 million | $467.6 million |
| Net income | $307.3 million | $259.7 million | $486.5 million | $358.4 million |
| Diluted EPS | $7.63 | $6.37 | $12.03 | $8.78 |
Q2 sales rose 15% and net income 18% year over year; first-half sales rose 22% and net income 36%. Base-business sales increased 10% in Q2 and 16% in the first half. Q2 operating margin increased to 20.4% from 18.9%; first-half operating margin rose to 18.9% from 16.4%. The company attributed margin improvement to supply-chain initiatives, pricing and acquisitions. Q2 diluted EPS growth was 20%; excluding the ASU 2016-09 share-based compensation tax benefit in both periods, adjusted diluted EPS increased 23% to $7.59.
Cash flow, debt and liquidity
- First-half operating cash flow was $28.7 million, down from $187.2 million. Management cited $79.5 million of federal tax payments that had been deferred at year-end 2021 and working-capital outflows, including increased inventory purchases.
- Cash and cash equivalents were $91.5 million at June 30, 2022. Inventory was $1.579 billion, up 77% year over year; trailing-four-quarter inventory turns fell to 2.8 from 4.1.
- Total debt was $1.595 billion, versus $423.1 million a year earlier, reflecting funding for working capital, acquisitions and share repurchases. Q2 average debt was $1.6 billion; the weighted-average effective interest rate was 2.0%.
- The company had $179.0 million available under its $750 million revolving credit facility. It reported compliance with material debt covenants: average total leverage ratio of 1.15 against a maximum of 3.25, and fixed-charge coverage of 12.22 against a minimum of 2.25. Management said it expected to remain compliant over the next 12 months.
- First-half cash dividends paid were $72.0 million and share repurchases were $278.7 million. The quarterly dividend was increased 25% to $1.00 per share; $422.8 million remained available under the repurchase authorization as of July 25.
Outlook, commentary and risks
- 2022 diluted EPS guidance was raised to $18.38–$19.13, including $0.22 per share of year-to-date ASU 2016-09 tax benefits. The company expects full-year sales growth of 17%–19% and product-cost inflation of approximately 10%–11%.
- Management expects slight full-year gross-margin improvement versus 2021, but projects margin declines in the latter half of 2022 compared with the corresponding 2021 periods. It expects operating-expense growth to be below gross-profit growth.
- Q2 performance benefited from strong demand and price inflation, while cooler, wetter weather constrained seasonal markets and Europe. European sales declined 8% in local currency in Q2; first-half sales were flat in local currency. Management reported some improvement in supply-chain conditions beginning in Q2, though constraints remained.
- Key risks cited include weather and seasonality, inflation and broader economic conditions, consumer discretionary spending and housing-market trends, supply-chain and labor constraints, sustainability of pandemic-era home-centric demand, and execution of growth plans. The company said there were no material changes to previously disclosed risk factors. Ordinary-course claims and litigation were not expected to have a material adverse effect based on currently available facts and insurance.
Important facts for investors to verify
- Whether volume and underlying base-business demand sustain growth as price inflation moderates and pandemic-related demand trends evolve.
- Whether inventory levels, slower inventory turns and receivables growth convert to cash without elevated obsolescence or collection risk.
- How higher debt and variable-rate exposure affect interest expense, covenant headroom and planned buybacks and dividends.
- Whether weather, European conditions, supply availability and expected second-half margin declines alter full-year guidance.
- The final purchase-price allocation for the Porpoise acquisition remained preliminary; confirm any subsequent accounting adjustments.