What happened
Shares in pool and spa equipment company Hayward Holdings (HAYW -0.53%) had declined as much as 10% as of 1 p.m. ET on Monday. The decline comes as the company announced its preliminary fourth-quarter results on a down day for the market on the whole.
It's not often that investors get to view a set of fourth-quarter earnings containing a 60% increase in net sales as disappointing. Still, after a great run, the market's been in sell-off mode recently, and any slight negative is being magnified into a reason to sell. In this case, it's the sales and earnings numbers from the preliminary results.
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Back in October, management guided toward a full-year net sales increase of 59% to 62% and adjusted full-year earnings before interest, taxation, depreciation, and amortization (EBITDA) of $405 million to $425 million.
For the preliminary results just released, management believes full-year net sales will be $1.39 billion to $1.40 billion and EBITDA will be $418 million to $423 million. The midpoint of the full-year sales range implies 60% growth, which is a smidgeon below the midpoint of the October guidance. Meanwhile, the midpoint of the EBITDA range is $5.5 million above the midpoint of the October guidance but below the high end of the October range.
It's not exactly a bad result. Moreover, in its preliminary results, management noted, "The expected increase in Net sales was primarily driven by higher volumes mainly in residential pool equipment sales as we continued to see demand from aftermarket upgrades and new construction."
So what
Investors are looking for reasons to sell in the current environment, but that certainly doesn't mean Hayward can't recover. The market for residential pool equipment was one of the big winners from the pandemic, as social-isolation measures encourage spending on leisure at home. As a result, Hayward and peers like Pool Corp. and Pentair have seen a growth surge. And with the increased number of new pools built, replacement and remodeling demand will likely drive growth in the future.
Now what
If the market is selling off over fears of the ongoing pandemic, then the sell-off in Hayward stock is probably a knee-jerk reaction too far. After all, the preliminary results weren't so bad, and if the pandemic worsens, it's likely that spending on pool equipment will also receive a boost.
