Stock Story -
Swimming pool distributor Pool (NASDAQ:POOL) fell short of analysts' expectations in Q1 CY2024, with revenue down 7.1% year on year to $1.12 billion. It made a GAAP profit of $2.04 per share, down from its profit of $2.58 per share in the same quarter last year.
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Pool (POOL) Q1 CY2024 Highlights:
- Revenue: $1.12 billion vs analyst estimates of $1.13 billion (0.8% miss)
- EPS: $2.04 vs analyst estimates of $1.92 (6.2% beat)
- Full year EPS guidance raised (to reflect additional tax benefits rather than fundamentals): $13.69 at the midpoint vs analyst estimates of $13.31 billion (2.9% beat)
- Gross Margin (GAAP): 30.2%, down from 30.6% in the same quarter last year
- Free Cash Flow of $128.4 million, similar to the previous quarter
- Market Capitalization: $14.52 billion
Founded in 1993 and headquartered in Louisiana, Pool (NASDAQ:POOL) is one of the largest wholesale distributors of swimming pool supplies, equipment, and related leisure products.
Specialized Consumer ServicesSome consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.
Sales GrowthA company’s long-term performance can give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. Pool's annualized revenue growth rate of 12.6% over the last five years was mediocre for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Pool's recent history shows a reversal from its already weak five-year trend as its revenue has shown annualized declines of 1.7% over the last two years.
This quarter, Pool missed Wall Street's estimates and reported a rather uninspiring 7.1% year-on-year revenue decline, generating $1.12 billion of revenue. Looking ahead, Wall Street expects sales to grow 4.2% over the next 12 months, an acceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Over the last two years, Pool has shown solid cash profitability, giving it the flexibility to reinvest or return capital to investors. The company's free cash flow margin has averaged 14.1%, above the broader consumer discretionary sector.
Pool's free cash flow came in at $128.4 million in Q1, equivalent to a 11.5% margin and up 46.5% year on year. Over the next year, analysts predict Pool's cash profitability will fall. Their consensus estimates imply its LTM free cash flow margin of 15.9% will decrease to 9%.
Key Takeaways from Pool's Q1 Results We enjoyed seeing Pool beat analysts' full-year earnings guidance expectations, although this guidance was raised to reflect expectations of additional tax credit benefits, not necessarily fundamentals. We were also glad its EPS outperformed Wall Street's estimates. On the other hand, its revenue unfortunately missed. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $377.39 per share.