POOL CORP - FORM 8-K - EX-99.1 - POOL Q2 2013 EARNINGS RELEASE

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8-K - POOL Q2 2013 EARNINGS RELEASE FORM 8-K - POOL CORP	pool-q22013x8k.htm

Exhibit 99.1

FOR IMMEDIATE RELEASE

POOL CORPORATION REPORTS RECORD SECOND QUARTER RESULTS

______________________

COVINGTON, LA. (July 18, 2013) – Pool Corporation (NASDAQ/GSM:POOL) today reported record results for the second quarter of 2013.

“Our second quarter results were bolstered by strong performances in our largest, year-round markets and growth in pool refurbishment and replacement activities. Most seasonal markets lagged given the late start to this year's season as noted in our June 18th press release. In contrast, the early start to last year's season amplified the impact of the delayed start in our seasonal markets and the consequential business lost from later pool openings,” said Manuel Perez de la Mesa, President and CEO.

Net sales for the quarter ended June 30, 2013 increased 4% to a record $790.4 million, compared to $757.2 million in the second quarter of 2012, with base business sales also up 4% for the period. The impact of weather on our second quarter results is evidenced by sales growth of approximately 9% on average in our largest, year-round markets while sales in our more seasonal markets remained flat overall. Irrigation sales were up 10% due to increased construction and renovation activity, spurred by modest improvements in the housing market.

Gross profit for the second quarter of 2013 increased 3% to $228.2 million from $222.4 million in the same period of 2012. Gross profit as a percentage of net sales (gross margin) declined 50 basis points to 28.9% in the second quarter of 2013. This decrease is attributable to changes in product mix, customer mix and geographic mix. We experienced double-digit sales growth during the quarter for certain discretionary lower margin product lines such as heaters and lighting products. Alternately, our sales of some higher margin, non-discretionary product lines declined during the quarter, as did sales growth in certain historically higher margin geographic regions as a result of the late start to the 2013 season.

Selling and administrative expenses (operating expenses) increased 2% to $116.2 million in the second quarter of 2013 compared to the same period in 2012. Base business operating expenses increased only 1% compared to the second quarter of 2012.

Operating income for the quarter increased 4% to $112.0 million compared to the same period in 2012. Operating income as a percentage of net sales (operating margin) was 14.2% for the second quarter of 2013 compared to 14.3% in the same period in 2012.

Net income increased 2% to $66.5 million in the second quarter of 2013, compared to $64.9 million for the second quarter of 2012. Earnings per share was up $0.05 to a record $1.39 per diluted share for the three months ended June 30, 2013 versus $1.34 per diluted share for the same period in 2012.

Net sales for the six months ended June 30, 2013 increased 4% to a record $1,160.8 million from $1,119.1 million in the comparable 2012 period. This growth included a 3% improvement in base business sales. Gross margin decreased 50 basis points to 28.7% in the first half of 2013 from 29.2% for the same period last year.

Operating expenses were up 1% compared to the first half of 2012, while base business operating expenses remained flat. Operating income for the first six months of 2013 increased 4% to $118.9 million compared to $114.2 million in the same period last year.

Earnings per share for the first six months of 2013 increased 4% to a record $1.47 per diluted share on net income of $70.0 million, compared to $1.42 per diluted share on net income of $68.6 million in the comparable 2012 period.

On the balance sheet, total net receivables and inventory levels increased 4% and 6%, respectively, relatively in line with sales growth. Total debt outstanding at June 30, 2013 was $300.4 million, down 3% compared to June 30, 2012.

Cash used in operations was $33.0 million for the first six months of 2013 compared to cash provided by operations of $33.5 million for the first six months of 2012. This change is largely attributable to the shift in the timing of the inventory purchase and payment cycle compared to the prior year, which should largely self-correct as the year progresses. Adjusted EBITDA (as defined in the addendum to this release) was $117.7 million for the second quarter of 2013 compared to $113.5 million for the second quarter of 2012, and $129.8 million for the six months ended June 30, 2013 compared to $124.5 million for the six months ended June 30, 2012.

“We maintain our recently announced earnings guidance range of $2.03 to $2.13 per diluted share. We are unwavering in our expectations for medium and long term earnings growth and intend to stay focused on the opportunities, the dynamics and the development of our industry. We have a driven team of professionals who are 100% committed to delivering exceptional service and doing their utmost to make success a reality as we embark on the second half of the year,” said Perez de la Mesa.

POOLCORP is the largest wholesale distributor of swimming pool and related backyard products. Currently, POOLCORP operates 321 sales centers in North America and Europe, through which it distributes more than 160,000 national brand and private label products to roughly 80,000 wholesale customers. For more information, please visit www.poolcorp.com.

This news release includes “forward-looking” statements that involve risk and uncertainties that are generally identifiable through the use of words such as “believe,” “expect,” “intend,” “plan,” “estimate,” “project” and similar expressions and include projections of earnings. The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date of this release, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. Actual results may differ materially due to a variety of factors, including the sensitivity of our business to weather conditions, changes in the economy and the housing market, our ability to maintain favorable relationships with suppliers and manufacturers, competition from other leisure product alternatives and mass merchants and other risks detailed in POOLCORP’s 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

CONTACT:

Craig K. Hubbard

985.801.5117

craig.hubbard@poolcorp.com

POOL CORPORATION

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012

Net sales	$	790,392		$	757,175		$	1,160,754		$	1,119,129
Cost of sales		562,226			534,770			827,827			792,161
Gross profit		228,166			222,405			332,927			326,968
Percent		28.9	%		29.4	%		28.7	%		29.2	%

Selling and administrative expenses		116,173			114,271			214,002			212,813
Operating income		111,993			108,134			118,925			114,155
Percent		14.2	%		14.3	%		10.2	%		10.2	%

Interest expense, net		2,081			2,200			3,695			3,677
Income before income taxes and equity earnings		109,912			105,934			115,230			110,478
Provision for income taxes		43,416			41,018			45,312			42,055
Equity earnings in unconsolidated investments		37			27			55			171
Net income	$	66,533		$	64,943		$	69,973		$	68,594

Earnings per share:
Basic	$	1.43		$	1.38		$	1.50		$	1.45
Diluted	$	1.39		$	1.34		$	1.47		$	1.42
Weighted average shares outstanding:
Basic		46,659			47,142			46,523			47,330
Diluted		47,882			48,288			47,758			48,430

Cash dividends declared per common share	$	0.19		$	0.16		$	0.35		$	0.30

POOL CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)



			June 30,		June 30,		Change
			2013		2012		$		%

Assets
Current assets:
	Cash and cash equivalents	$	26,936	$	50,311	$	(23,375	)	(46	)	%
	Receivables, net		281,064		269,060		12,004		4
	Product inventories, net		424,679		402,266		22,413		6
	Prepaid expenses and other current assets		10,219		8,437		1,782		21
	Deferred income taxes		5,103		7,098		(1,995	)	(28	)
Total current assets			748,001		737,172		10,829		1

Property and equipment, net			51,110		45,409		5,701		13
Goodwill			169,983		177,103		(7,120	)	(4	)
Other intangible assets, net			10,592		11,497		(905	)	(8	)
Equity interest investments			1,190		1,089		101		9
Other assets, net			9,133		7,857		1,276		16
Total assets		$	990,009	$	980,127	$	9,882		1		%

Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable	$	239,976	$	267,990	$	(28,014	)	(10	)	%
	Accrued expenses and other current liabilities		79,844		83,609		(3,765	)	(5	)
	Current portion of long-term debt and other long-term liabilities		20		22		(2	)	(9	)
Total current liabilities			319,840		351,621		(31,781	)	(9	)

Deferred income taxes			15,263		9,257		6,006		65
Long-term debt			300,426		309,813		(9,387	)	(3	)
Other long-term liabilities			7,871		7,058		813		12
Total liabilities			643,400		677,749		(34,349	)	(5	)
Total stockholders’ equity			346,609		302,378		44,231		15
Total liabilities and stockholders’ equity		$	990,009	$	980,127	$	9,882		1		%

__________________


1.	The allowance for doubtful accounts was $4.4 million at June 30, 2013 and $5.0 million at June 30, 2012.


2.	The inventory reserve was $8.5 million at June 30, 2013 and $9.6 million at June 30, 2012.

POOL CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)



			Six Months Ended
			June 30,
			2013			2012			Change
Operating activities
Net income		$	69,973		$	68,594		$	1,379
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
	Depreciation		6,338			5,559			779
	Amortization		622			638			(16	)
	Share-based compensation		4,111			4,306			(195	)
	Excess tax benefits from share-based compensation		(3,187	)		(1,609	)		(1,578	)
	Equity earnings in unconsolidated investments		(55	)		(171	)		116
	Other		(1,633	)		1,248			(2,881	)
Changes in operating assets and liabilities, net of effects of acquisitions:
	Receivables		(165,713	)		(157,829	)		(7,884	)
	Product inventories		(24,134	)		(13,289	)		(10,845	)
	Prepaid expenses and other assets		459			2,612			(2,153	)
	Accounts payable		39,458			88,946			(49,488	)
	Accrued expenses and other current liabilities		40,783			34,516			6,267
Net cash (used in) provided by operating activities			(32,978	)		33,521			(66,499	)

Investing activities
Acquisition of businesses, net of cash acquired			(1,188	)		(4,429	)		3,241
Purchase of property and equipment, net of sale proceeds			(10,500	)		(9,520	)		(980	)
Other investments			29			(166	)		195
Net cash used in investing activities			(11,659	)		(14,115	)		2,456

Financing activities
Proceeds from revolving line of credit			399,472			345,631			53,841
Payments on revolving line of credit			(329,928	)		(183,118	)		(146,810	)
Payments on long-term debt and other long-term liabilities			(10	)		(100,012	)		100,002
Excess tax benefits from share-based compensation			3,187			1,609			1,578
Proceeds from stock issued under share-based compensation plans			13,489			7,879			5,610
Payments of cash dividends			(16,308	)		(14,223	)		(2,085	)
Purchases of treasury stock			(10,437	)		(43,866	)		33,429
Net cash provided by financing activities			59,465			13,900			45,565
Effect of exchange rate changes on cash and cash equivalents			(355	)		(482	)		127
Change in cash and cash equivalents			14,473			32,824			(18,351	)
Cash and cash equivalents at beginning of period			12,463			17,487			(5,024	)
Cash and cash equivalents at end of period		$	26,936		$	50,311		$	(23,375	)

ADDENDUM

Base Business

The following table breaks out our consolidated results into the base business component and the excluded component (sales centers excluded from base business):



(Unaudited)	Base Business						Excluded						Total
(in thousands)	Three Months Ended						Three Months Ended						Three Months Ended
	June 30,						June 30,						June 30,
	2013			2012			2013			2012			2013			2012
Net sales	$	785,357		$	755,284		$	5,035		$	1,891		$	790,392		$	757,175

Gross profit	226,810			221,798			1,356			607			228,166			222,405
Gross margin	28.9		%	29.4		%	26.9		%	32.1		%	28.9		%	29.4		%

Operating expenses	115,002			113,707			1,171			564			116,173			114,271
Expenses as a % of net sales	14.6		%	15.1		%	23.3		%	29.8		%	14.7		%	15.1		%

Operating income	111,808			108,091			185			43			111,993			108,134
Operating margin	14.2		%	14.3		%	3.7		%	2.3		%	14.2		%	14.3		%



(Unaudited)	Base Business						Excluded						Total
(in thousands)	Six Months Ended						Six Months Ended						Six Months Ended
	June 30,						June 30,						June 30,
	2013			2012			2013			2012			2013			2012
Net sales	$	1,151,800		$	1,114,239		$	8,954		$	4,890		$	1,160,754		$	1,119,129

Gross profit	330,451			325,509			2,476			1,459			332,927			326,968
Gross margin	28.7		%	29.2		%	27.7		%	29.8		%	28.7		%	29.2		%

Operating expenses	210,888			210,927			3,114			1,886			214,002			212,813
Expenses as a % of net sales	18.3		%	18.9		%	34.8		%	38.6		%	18.4		%	19.0		%

Operating income (loss)	119,563			114,582			(638		)	(427		)	118,925			114,155
Operating margin	10.4		%	10.3		%	(7.1		)%	(8.7		)%	10.2		%	10.2		%

We have excluded the following acquisitions from base business for the periods identified:



Acquired ⁽¹⁾	Acquisition Date	Net Sales Centers Acquired	Periods Excluded
B. Shapiro Supply, LLC	May 2013	1	May - June 2013
Swimming Pool Supply Center, Inc.	March 2013	1	March - June 2013
CCR Distribution	March 2012	1	January - May 2013 and March - May 2012
Ideal Distributors Ltd.	February 2012	4	January - April 2013 and February - April 2012
G.L. Cornell Company	December 2011	1	January - February 2013 and January - February 2012
Poolway Schwimmbadtechnik GmbH	November 2011	1	January - February 2013 and January - February 2012


⁽¹⁾	We acquired certain distribution assets of each of these companies.

We exclude sales centers that are acquired, closed or opened in new markets from base business results for a period of 15 months. We also exclude consolidated sales centers when we do not expect to maintain the majority of the existing business and existing sales centers that are consolidated with acquired sales centers. As of June 30, 2013, we excluded three sales centers opened in new markets from base business.

We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales. After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.

The table below summarizes the changes in our sales centers in the first six months of 2013:



December 31, 2012	312
Acquired	2
New locations	7
June 30, 2013	321

Adjusted EBITDA

We define Adjusted EBITDA as net income or net loss plus interest expense, income taxes, depreciation, amortization, share-based compensation, goodwill and other non-cash impairments and equity earnings or loss in unconsolidated investments. Adjusted EBITDA is not a measure of cash flow or liquidity as determined by generally accepted accounting principles (GAAP). We have included Adjusted EBITDA as a supplemental disclosure because we believe that it is widely used by our investors, industry analysts and others as a useful supplemental liquidity measure in conjunction with cash flows provided by or used in operating activities to help investors understand our ability to provide cash flows to fund growth, service debt and pay dividends as well as compare our cash flow generating capacity from year to year.

We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, cash flows provided by or used in operating, investing and financing activities or other income statement or cash flow statement line items reported in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.

The table below presents a reconciliation of net income to Adjusted EBITDA.



(Unaudited)			Three Months Ended						Six Months Ended
(In thousands)			June 30,						June 30,
			2013			2012			2013			2012
Net income		$	66,533		$	64,943		$	69,973		$	68,594
	Add:
	Interest expense ⁽¹⁾		2,081			2,200			3,695			3,677
	Provision for income taxes		43,416			41,018			45,312			42,055
	Share-based compensation		2,206			2,205			4,111			4,306
	Equity earnings in unconsolidated investments		(37	)		(27	)		(55	)		(171	)
	Depreciation		3,265			2,895			6,338			5,559
	Amortization ⁽²⁾		204			222			429			443
Adjusted EBITDA		$	117,668		$	113,456		$	129,803		$	124,463


⁽¹⁾	Shown net of interest income and includes amortization of deferred financing costs as discussed below.


⁽²⁾	Excludes amortization of deferred financing costs of $97 and $96 for the three months ended June 30, 2013 and June 30, 2012, respectively, and $193 and $195 for the six months ended June 30, 2013 and June 30, 2012, respectively.

The table below presents a reconciliation of Adjusted EBITDA to net cash provided by (used in) operating activities. Please see page 5 for our Condensed Consolidated Statements of Cash Flows.



(Unaudited)			Three Months Ended						Six Months Ended
(In thousands)			June 30,						June 30,
			2013			2012			2013			2012
Adjusted EBITDA		$	117,668		$	113,456		$	129,803		$	124,463
	Add:
	Interest expense, net of interest income		(1,984	)		(2,104	)		(3,502	)		(3,482	)
	Provision for income taxes		(43,416	)		(41,018	)		(45,312	)		(42,055	)
	Excess tax benefits from share-based compensation		(1,484	)		(471	)		(3,187	)		(1,609	)
	Other		(1,595	)		307			(1,633	)		1,248
	Change in operating assets and liabilities		(62,181	)		(2,622	)		(109,147	)		(45,044	)
Net cash provided by (used in) operating activities		$	7,008		$	67,548		$	(32,978	)	$	33,521

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