Pool Corp. (POOL: 21.68 +0.79 +3.78%) reported second quarter 2010 earnings of $1.05 per share, slightly higher than the Zacks Consensus Estimate of $1.03. The increase was driven by a modest rise in net sales. A reviving economy also improved the company’s performance in the quarter. Pool had earned 99 cents in the comparable quarter last year. The company reported an 8% year-over-year rise in net sales of $647.5 million during the quarter, well ahead of Zacks Consensus Estimate of $623 million.Inside The Headline Numbers
Pool experienced a 5% hike in Base business sales primarily aided by higher discretionary spending, expansion in product offerings including replacement parts, and favorable weather condition. The reported quarter enjoyed the year-over-year growth in Base business despite an $8 million gain realized in the year-ago quarter, which was driven by regulatory changes related to pool and spa safety, along with weakness in irrigation construction markets.
Gross profit climbed 7% from the year-ago period to $190.5 million, while gross margin fell 20 basis points year over year to 29.4%. The decline in gross margin was due to continued pricing pressures from competitors, which was partially offset by some positive impact from inventory purchases that were made ahead of vendor price increases in the quarter.
Operating expenses spiked 6% from the year-ago period to $101.7 million mainly due to the recent acquisition-related charges. Base business operating expenses were up 2% from the prior-year period reflecting a $4.7 million rise in incentive costs, which were slightly offset by a 3% drop in non-incentive expenses.
Pool reported a modest 9% increase in the quarter’s operating income of $88.9 million.
Financials
Turning to the balance sheet, net receivables upped 2% from the prior-year period. Excluding recent acquisitions, total net receivables slipped 1% despite the increase in sales owing to substantial improvements in customer collections. Inventory levels grew 2% year over year to $331.5 million at the end of the second quarter.
Outlook
For full-year 2010, Pool increased the lower end of its earnings per share guidance from $1.00–$1.15 to $1.10–$1.15 based on strong second quarter results which is seasonally weak, and a modest outlook for second half of 2010.
Although the second-quarter results signaled a turnaround in the company’s business, which came on the back of resurgence in global economy, we believe, Pool is not yet totally immune to challenges. The company’s margin remains stressed, a trend that is expected to continue with severe competition along its geographic footprint.
| Overall Summary: |  70%, Bullish 30%, Bearish | Trade Quality: | Upside 40%, Poor Downside 75%, Good |
| Analysts' Targets | |
| Dougherty & Co. | $21 |
| Underperform | |
| Friday, April 23, 2010 | |
| Piper Jaffray | $21 |
| Outperform | |
| Monday, April 19, 2010 | |
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