Stock Story -
Swimming pool distributor Pool (NASDAQ:POOL) fell short of analysts' expectations in Q4 FY2023, with revenue down 8.5% year on year to $1.00 billion. It made a GAAP profit of $1.32 per share, down from its profit of $1.79 per share in the same quarter last year.
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Pool (POOL) Q4 FY2023 Highlights:
- Revenue: $1.00 billion vs analyst estimates of $1.02 billion (1.6% miss)
- EPS: $1.32 vs analyst estimates of $1.26 (5.1% beat)
- Free Cash Flow of $121.1 million, down 66.4% from the previous quarter
- Gross Margin (GAAP): 29.3%, up from 28.8% in the same quarter last year
- Market Capitalization: $15.05 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. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. Pool's annualized revenue growth rate of 13.1% over the last five years was decent for a consumer discretionary business. Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Pool's recent history shows the business has slowed as its annualized revenue growth of 2.3% over the last two years is below its five-year trend.
This quarter, Pool missed Wall Street's estimates and reported a rather uninspiring 8.5% year-on-year revenue decline, generating $1.00 billion of revenue. Looking ahead, Wall Street expects sales to grow 3.6% 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 decent cash profitability, giving it some reinvestment opportunities. The company's free cash flow margin has averaged 10.8%, slightly better than the broader consumer discretionary sector.
Pool's free cash flow came in at $121.1 million in Q4, equivalent to a 12.1% margin and down 25.1% 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 14.9% will decrease to 8.7%.
Key Takeaways from Pool's Q4 Results It was encouraging to see Pool slightly top analysts' EPS expectations this quarter. That stood out as a positive in these results. On the other hand, its revenue fell short and its full-year earnings forecast was underwhelming. Management noted that 2023 was a challenging year as unfavorable weather in the first half of the year delayed pool openings and higher interest rates led to a slowdown in new housing construction, which affected new pool construction. Overall, the results could have been better. The company is down 5% on the results and currently trades at $370 per share.
