In the Pool Corporation Fourth Quarter 2024 Conference Call, Senior Vice President and CFO Melanie Hart introduced the earnings discussion, mentioning that the conversation may include forward-looking statements and non-GAAP financial measures, with additional details available on their website. The company’s president and CEO, Peter Arvan, reported that their full year and fourth-quarter 2024 results exceeded expectations despite challenging market conditions in construction and remodeling. They focused on enhancing customer experience, growing their maintenance business, and expanding their Pool 360 ecosystem. However, consumer discretionary spending, particularly those requiring financing, remains a challenge.

The paragraph discusses the decline in new pool construction, projecting a 15% decrease in 2024 compared to the previous year and a 50% drop from the pandemic peak. Despite economic challenges, the company has managed to gain market share due to its strong team, execution, and investment in the industry. Financial results for the year include $5.3 billion in revenue, a 4% decrease from 2023, with a gross margin of 29.7% and operating income of $617 million. The company achieved a diluted EPS of $11.30, including a tax benefit, and generated $659 million in operating cash flow. In the fourth quarter, sales were $988 million, representing a 2% decline from the prior year, continuing a trend of sequential improvement over the year.

The company's gross margins improved slightly to 29.4%, and operating income reached $60.7 million with a 6.1% operating margin. Diluted EPS was $0.98, benefiting from a tax adjustment. Geographically, Florida's sales remained steady for the year and grew by 12% in the fourth quarter due to hurricane recovery activities, while other year-round markets experienced a mid-single-digit sales decline. In particular, Texas and California saw drops in construction-related product sales. Horizon's net sales decreased by 6% annually and 4% in the fourth quarter, but commercial irrigation and maintenance-related sales helped offset declines in residential construction. In Europe, sales were down 9% for the year and 5% in the fourth quarter, but the swimming pool season showed some recovery. Chemical sales rose by 2% for the year and 8% in the fourth quarter, bolstered by private label growth and storm-related cleanup in Florida.

The company has introduced new branding and marketing strategies along with branded test strips for a private label consumer app, targeting growth for the 2025 season. Despite a 10% annual decline in building material sales, the company performed relatively well given the 15% decrease in new pool constructions. Equipment sales remained stable annually and rose 6% in the fourth quarter, partly due to increased repair activities in Florida. Supply chain improvements were made to enhance customer service. Commercial pool product sales grew by 9% annually and in the fourth quarter, thanks to investments in acquisitions and talent. Sales to independent retail customers decreased 4% over the year but increased slightly in the fourth quarter.

In 2024, Pinch A Penny's retail sales increased, with significant growth in the fourth quarter due to storm-related activities, notably in Florida. Orders through their B2B Pool 360 application also rose, signifying the success of their new tools and private label products. The company expanded its sales center network, adding new locations and franchises, notably in Texas, bringing the total to nearly 450 centers and 295 stores. They developed distribution capabilities in Dallas and Houston and plan to enter the Arizona market soon. Pool 360 is seen as a revolutionary service for business growth and efficiency.

The paragraph outlines the company's outlook for the 2025 market, noting solid 2024 results due to strategic growth in maintenance and new pool/remodel work despite a challenging discretionary spending environment. Expectations for 2025 are similar, with interest rates unlikely to aid the industry and consumer financing hesitancy. Maintenance-related sales should remain steady with slight growth from increased installations, modest inflation, and market share gains. Total sales growth is expected to be flat or slightly up, driven by 1-2% inflation and continued market share expansion. New pool construction is anticipated to remain flat, with economic uncertainty affecting financing-dependent consumers. Renovation and remodel activities are expected to stabilize after two years of reduced project number and scope.

The paragraph discusses the optimistic growth outlook for the company's future, highlighting deferred remodels as a potential growth area as the economy improves. The 2024 guidance for diluted earnings per share is projected between $11.08 to $11.58, including a small ASU benefit. The company is strategically expanding its sales center footprint and investing in technology, products, and services to support pool professionals, builders, and DIY markets. Long-term growth in the Outdoor Living industry is supported by factors like southern migration, millennials and Gen Z homeownership, housing shortages, and technological advancements. Reflecting on post-pandemic growth, the company has expanded its revenue, margins, and franchise network, while increasing efficiency through a vertically integrated chemical repackaging plant and technological tools.

The paragraph discusses Poolcorp’s strategic advantages, including its extensive distribution network, central shipping locations, and integrated ERP system, which enable efficient customer service and business growth. The speaker, Pete, expresses gratitude to the Poolcorp team, vendors, and customers. Melanie Hart, the senior vice president and CFO, then takes over to recap the company's fourth-quarter results: a 2% year-over-year sales decrease, showing improvement from earlier quarters. The fourth quarter had an additional selling day with minimal impact and saw a 1% sales benefit in Florida due to weather. Net 1% inflation benefit from positive pricing was offset by lower selling prices for chemicals and commodities.

In the fourth quarter, sales decreased by an estimated 5%, primarily due to reduced new pool construction and repair activities, although maintenance product volumes remained positive. The gross margin was stable at 29.4%, similar to the previous year. Lower sales of building materials affected the margin, but this was offset by improvements in pricing and supply chain actions. Operating expenses increased by $15 million, largely due to timing shifts, new sales centers, and technology investments. Operating income dropped to $61 million from $79 million, and the operating margin decreased to 6.1% from 7.9%. Diluted earnings per share fell to $0.98 from $1.32. Despite these challenges, the company successfully managed macroeconomic pressures and maintained strong cash flow, reducing inventory by $76 million. They also focused on expanding their footprint by opening ten Greenfield sales centers and acquiring two more, aiming for long-term growth and profitability.

The paragraph outlines the financial performance and strategic developments of a company in the outdoor living space. The company opened eleven new Pinch A Penny franchise stores and reduced its debt by $103 million, while returning $483 million to shareholders through dividends and share repurchases. Despite net sales of $5.3 billion, there was a 4% sales decrease due to declines in new pool construction and renovation spending. However, maintenance product sales improved, aided by a 2% pricing increase from vendor cost pass-through, though offset by 1% due to chemical and commodity costs. Weather and lower sales in Horizon Europe also negatively impacted sales. The product sales mix shifted slightly towards maintenance in 2024, with decreases in renovation and new pool construction items. The company's building materials saw a 10% decrease in sales. It aims for a long-term gross margin target of 30%, achieving a margin of 29.7% in 2024, down from 30% the previous year.

In 2024, the company's gross margin was negatively affected by a shift in product and customer mix, with larger customers performing better than smaller ones and a decrease in new construction-related sales. This was partly offset by benefits from import tax reversals, improved pricing, increased sales of private label chemicals, and the normalization of purchase-related incentives. Building materials constituted a smaller portion of sales compared to the previous year. The operating margin remained steady at 11.6%, close to the 2020 figure, even with rising costs and a sales contraction. Operating expenses rose by 5% or $45 million, largely due to investments in technology and new Greenfield Stylo Centers, yet were managed effectively against inflationary pressures. The company reported an ASU benefit contributing $0.23 per diluted share, with a tax rate of 25% excluding ASU. Overall, earnings per share decreased by 15% to $11.30, or 16% to $11.87 excluding ASU, compared to the previous year's EPS.

In 2024, the company achieved cash flows that were 152% of net income, driven by a significant reduction in inventory and strategic supply chain initiatives despite a sales decline. Cash flow was strong even without the benefit of a deferred tax payment of $68.5 million, which will impact 2025. The company improved its financial position with a reduction in days sales outstanding to 26.3 days and an $8 million decrease in accounts receivable. Inventory was reduced by $76 million to $1.3 billion, and total debt was decreased by $103 million to $950 million, funded by operating cash flow. Capital expenditures amounted to over $59 million, supporting new locations and technology, alongside a 9% dividend increase and $304 million in share repurchases, which reduced weighted average shares by 2%. The leverage ratio ended at 1.4, below the target range. Total returns to shareholders, including dividends and share buybacks, reached $483 million, making it the second-highest return after 2022.

The company has returned almost $1 billion to shareholders despite a challenging business climate. For 2025, they do not foresee a quick recovery in sales trends due to high interest rates, inflation, and economic uncertainty. Their maintenance business remains strong, thanks to pools added in prior years, even if new construction and remodeling don't see significant improvement. They expect a 1% to 2% pricing benefit in their product portfolio, with some initial challenges in chemicals and commodities. Sales for 2025 are projected to be flat or have a slight increase, with limited impact from tariffs, as most products are sourced domestically. Any potential cost increases from future tariffs will be addressed in their guidance. Gross margin is anticipated to align with 2024 levels, aiming for a long-term target of 30%.

In 2025, the company expects increased contributions from supply chain management and private label sales to offset the benefits of a 2024 import tax, but does not anticipate significant growth in new pool construction or remodeling. Gross margins are not expected to benefit significantly due to product mix. Operating costs, such as wages and rent, continue to rise, prompting management to focus on productivity. Investments in technology will remain at 2024 levels, with an additional $10 million allocated for expanding sales centers. Incentive compensation could increase by $15 million with top-line growth. Interest expenses are projected at $40 to $45 million, primarily higher in early quarters due to inventory needs, with overall improvement driven by lower debt levels. Depreciation expenses are estimated at $50 to $55 million. The company plans to use 1% to 1.5% of net sales for capital reinvestment, allocate $25 million to $50 million for acquisitions, and spend around $200 million on dividends.

The paragraph discusses the financial projections and strategic plans for a company in 2025. Peter Arvan mentions the intention to repurchase shares opportunistically. Melanie Hart outlines expectations for cash flow to be 90-100% of net income, with impacts from a significant deferred tax payment in early 2025. The annual tax rate is estimated to be around 25%, with variations across quarters. An 8% benefit from ASU is anticipated in the first quarter. The company projects about 38 million weighted average shares outstanding, affecting the net income calculations. The diluted EPS range for 2025 is forecasted to be $11.08 to $11.58, including a tax benefit. Operationally, earnings are expected to improve by 4% at the midpoint, excluding a past import tax benefit. The first quarter will have one fewer selling day, with potential shifts in pool opening dates to the second quarter due to Easter. A normal seasonal gross margin is anticipated for Q1 2025. The company plans to leverage stable maintenance business, gain market share, and adapt to economic changes to outperform the market.

In the paragraph, the speaker, Peter Arvan, discusses their company's preparedness for when construction activities return to normal levels due to strategic investments aimed at outpacing market growth. During a Q&A session, Susan Maklari from Goldman Sachs asks about the Pool 360 initiatives and their impact on the company's sales outlook, as well as investment plans for those initiatives. Peter Arvan responds positively, highlighting the momentum of Pool 360 and its ecosystem, predicting flat sales for new construction and emphasizing a focus on the maintenance segment of the business, particularly with private label chemicals.

The paragraph discusses the effectiveness of Pool 360, highlighted by the rise in private label chemical sales. Pool 360 promotes proprietary chemicals regardless of market conditions, relying on the number of pools and weather impacts on swim season duration. Consumers can use the Pool 360 app or dealers' water tests, enhancing maintenance companies' efficiency and customer retention by recommending only their products. Susan Maklari inquires about the DIY market impact on Pinch A Penny amid economic pressures. Peter Arvan and Melanie Hart note there hasn't been a significant shift from professional services to DIY, as customers often move back and forth between self-management and professional help.

The paragraph discusses the importance of a great customer experience in the retail and pool service industry, highlighting Pinch A Penny as an example of providing excellent service due to being owner-operated and well-stocked with the necessary apps and technology for trouble-free pool maintenance. Susan Maklari and Ryan Merkel, both analysts, pose questions during a call. Susan appreciates the information shared, while Ryan questions the flat outlook for new construction units given the high-interest rates and declining pool permits. Peter Arvan responds by indicating that dealer feedback and activities reported early in the year suggest good activity levels, implying confidence in the flat outlook despite the challenging conditions.

The paragraph discusses the economic outlook and strategies for maintaining or improving gross margins. The speaker notes that while the weather is cold and snowy, particularly in unexpected places like Louisiana, dealers believe that conditions won't worsen and expect economic improvement in the second half of the year. Ryan Merkel expresses surprise at the guidance for flat to increasing gross margins, questioning how this will be achieved despite challenges like product mix and accounting issues. Melanie Hart outlines six specific actions to offset these challenges, focusing on supply chain improvements, introducing new private label product categories, and enhancing pricing strategies. The conversation then transitions to addressing competitive pressures and customer mix considerations for the upcoming year, with Scott Schneeberger asking for further details on these topics.

The paragraph discusses the growth and market dynamics in the swimming pool industry, particularly the influence of private equity and national accounts consolidating, which has allowed companies to better serve customers and potentially improve market share. In terms of remodeling, Peter Arvan explains that the market is divided between cash customers, who can proceed with pool renovations easily, and those relying on financing, who might be more affected by rising costs and interest rates. This bifurcation in customer types is influencing how companies approach renovations and remodels amidst the current housing market conditions.

The paragraph discusses the costs and financing involved in pool remodel projects, emphasizing how high interest rates have led many to delay such renovations. However, as interest rates decrease, there is expected growth in the pool renovation market because many existing pools are aging. The discussion suggests that while renovations are considered semi-discretionary, eventually they become necessary to preserve the value of the pool. David Manthey acknowledges the comments and the operator introduces his next question, which concerns the expectations for weather conditions in 2024 as a comparative factor for 2025.

In the article paragraph, Peter Arvan and David Manthey discuss the impacts of weather and strategic priorities for their business. Despite normal precipitation, record mild temperatures were noted in April, May, and June, which generally benefits their operations. Arvan highlights that while the business faces wild swings early in the year due to weather, it stabilizes as the season progresses. They also discuss the strategic outlook for their "Horizon" business, which is heavily reliant on new home construction. Due to a housing shortage, Horizon is in a favorable position, though the current housing market is restrained by high interest rates. Arvan believes that as interest rates eventually decrease, the housing market will unlock, benefiting Horizon.

The paragraph discusses the current business environment, emphasizing that Horizon's commercial sector is performing better than the residential sector. The company is not heavily investing in new branches, mainly focusing on the Sunbelt region where they have a strong competitive presence. They do not foresee significant capital investment needed for new locations unless there is a surge in the new home construction market, particularly outside the Sunbelt. The discussion shifts to Andrew Carter's inquiry about commodity pressures, particularly chemicals, PVC, and building materials. Melanie Hart acknowledges these pressures, noting they are considered in the company's guidance, with some relief expected by 2024.

The paragraph discusses the chemical and PVC piping market conditions for the first quarter, noting some pressure on PVC pricing and no recovery in sight. Selling prices have dropped slightly since the end of 2024 but are stabilizing as the market normalizes. The conversation then shifts to new construction trends, highlighting flat growth expectations for the year due to pressure at entry levels not bouncing back. However, there is potential upside from content-rich, feature-rich offerings, despite overall declines in building materials and new construction last year. Andrew Carter inquires if these factors are considered in future projections or guides.

In the paragraph, a discussion takes place regarding the swimming pool industry, focusing on the trend towards building larger, feature-rich pools rather than entry-level ones. Peter Arvan comments that if people have the money to build a pool, they typically want to include the latest technology rather than outdated options, and most builders wouldn't opt for older platforms anyway. The industry's average pool size and features are key factors driving up pool costs. Arvan mentions an ongoing demand for entry-level pools and implies that market demand cycles may shift in the future. The company continues to invest in the business, expecting to benefit from these investments when the market cycle changes. Andrew Carter then concludes this segment, and the conversation shifts to Trey Grooms, who queries about the operating expenses and their timing throughout the year, referring specifically to Melanie for details about the cadence of these expenses.

The paragraph is a discussion among Peter Arvan, Melanie Hart, and Trey Grooms about the company's investment plans for 2025, particularly the opening of new sales centers and the timing of related expenses. Melanie Hart explains that they plan to open a similar number of new sales centers in 2025, with a $10 million investment, mostly occurring before the peak season, meaning expenses will be concentrated in the first and second quarters and the rest in the fourth quarter. Trey Grooms asks about the demand for rebuilding in Florida due to hurricanes and the impact on seasonality. Peter Arvan responds that reconstruction in Florida is ongoing, particularly in areas where homes are not yet rebuilt, as pools will only be rebuilt once homes are habitable.

The paragraph discusses the ongoing and future work opportunities for pool construction and home rebuilding in Florida due to uninhabitable conditions caused by damaged homes that need to be raised and rebuilt rather than just repaired. The speaker anticipates that the second half of the year will be stronger than the first for new construction, though predicting is challenging due to economic uncertainty. Weather patterns may affect the first quarter, as winter conditions persist up north. Despite these challenges, there's optimism among dealers that the situation will improve as the year progresses. Trey Grooms acknowledges this, and the operator introduces the next speaker, Garik Shmois from Loop Capital Markets.

In this dialogue, Peter Arvan discusses their company's M&A budget, stating that they continue to focus on investments in the same areas as before, with opportunities for consolidation being less abundant than they were five or six years ago. Regarding labor availability in new construction, particularly in light of new immigration policies, Arvan mentions that there hasn’t been a significant change in their labor pool. He notes that the administration's policies target recent migrants, but the labor force from earlier years, which managed to support strong construction activity, is still largely available and not impacted by these policies. Thus, the company isn’t hearing significant concerns from builders about labor availability. The conversation closes with Sam Reid from Wells Fargo preparing to ask the final question.

In the paragraph, Peter Arvan discusses the factors that could impact returning to a 6% to 9% growth rate for his business. He emphasizes the importance of the housing market loosening and interest rates decreasing. If rates remain high and access to affordable capital is limited, there might be an adjustment period where people view these conditions as the new normal. However, he believes that if wages rise over time, the housing market may naturally open up, and demand for swimming pools and outdoor living products should remain high. He is optimistic that rates will eventually decrease, leading to renewed growth driven by pent-up demand for renovations and remodels.

In the paragraph, Sam Reid and Melanie Hart discuss the company's focus on expanding into new private label categories, specifically in the maintenance side of the business. They expect these products to contribute to the cost of goods sold (COGS) and potentially improve gross margins in 2025. Although the company benefitted from import taxes in 2024, those won't recur, leading to a 20 basis point impact. They also plan to expand their MPT private label product line, particularly in pool finishes and tiles, which is expected to benefit in 2025 and beyond as new pool constructions and renovations increase. The conversation concludes with the CEO, Peter Arvan, announcing the next earnings call on April 24, 2025.

This summary was generated with AI and may contain some inaccuracies.