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Pool Corp. Reports Operating Results (10-K)

March 01, 2011 | About:

10qk

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Pool Corp. (POOL) filed Annual Report for the period ended 2010-12-31.

Pool Corp. has a market cap of $1.24 billion; its shares were traded at around $24.96 with a P/E ratio of 21.9 and P/S ratio of 0.8. The dividend yield of Pool Corp. stocks is 2.1%. Pool Corp. had an annual average earning growth of 10.9% over the past 10 years.Hedge Fund Gurus that owns POOL: Bruce Kovner of Caxton Associates, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors. Mutual Fund and Other Gurus that owns POOL: Columbia Wanger of Columbia Wanger Asset Management, Chuck Royce of Royce& Associates, Tom Gayner of Markel Gayner Asset Management Corp, Kenneth Fisher of Fisher Asset Management, LLC.

Highlight of Business Operations:

The adverse housing and economic trends over the past several years had a significant impact on our industry and our performance. These trends drove an approximate 80% reduction in new pool construction in the United States compared to peak levels in 2005 and also contributed to more than a 30% decline in replacement and refurbishment activities. The impact of these trends was more severe in some of the largest pool markets including California, Florida and Arizona. Since irrigation is more heavily weighted towards new construction activities, the impact was greater on our Horizon business due to the significant declines in new home and commercial construction activities. In order to mitigate the greater rate of earnings decline for our irrigation business, we have consolidated several facilities and have significantly reduced operating costs related to our Horizon network over the past two years.

Based on industry data, we believe our industry grew at a 2% to 6% annual rate for the period between 2000 and 2005, contracted each year between 2006 and 2009 and was flat to slightly up in 2010, including the impact of moderating contraction within the irrigation industry. Historically, our sales growth rates have exceeded the industry s growth rates as we have increased our market share. We believe that our high service levels and expanded product offerings have also enabled us to gain market share during the past five years even as our industry contracted. Going forward, we expect to realize sales growth higher than the industry average due to further increases in market share and continued expansion of our product offerings.

We estimate that price inflation has averaged 1% to 3% annually in our industry over the past 10 years. We generally pass industry price increases through the supply chain and make strategic volume inventory purchases ahead of vendor price increases. In 2010, our industry experienced some price deflation after experiencing above average inflationary increases in product costs in 2008 and 2009. In 2011, we anticipate more normalized price inflation of 1% to 2% overall, although we expect price deflation for certain chemical products.

We track and monitor the majority of our sales by various product lines and product categories, primarily for consideration in incentive plan programs and to provide support for sales and marketing efforts. We currently have over 300 product lines and over 40 product categories. Based on our 2010 product classifications, sales for our pool and spa chemicals product category as a percentage of total net sales was 14% in 2008 and 17% in both 2009 and 2010. We attribute the growth between 2008 and 2009 to increases in our market share, a shift in product mix resulting from the decline in construction related products and chemical price increases. Chemical sales growth in 2010 was consistent with our overall base business sales growth rate despite price deflation for certain chemical products. No other product category accounted for 10% or more of total net sales in any of the last three fiscal years.

Maintenance and minor repair products are primarily non-discretionary in nature, meaning that these items must be purchased by end users to maintain existing swimming pools and landscaped areas. In 2009 and 2010, the sale of maintenance and minor repair products accounted for approximately 70% of our sales and gross profits while approximately 30% of sales and gross profits were derived from the replacement, construction and installation (equipment, materials, plumbing, electrical, etc.) of pools and landscaping. This reflects a shift toward more sales of maintenance and minor repair products due to the significant declines in new pool construction since 2005. Prior to this industry downturn, just over 50% of our total sales and gross profits were related to maintenance and minor repair products.

We regularly evaluate supplier relationships and consider alternate sourcing to assure competitive cost, service and quality standards. Our largest suppliers include Pentair Water Pool and Spa, Inc., Hayward Pool Products, Inc. and Zodiac Pool Systems, Inc., which accounted for approximately 17%, 12% and 9%, respectively, of the cost of products we sold in 2010.

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