It was an ugly first quarter for Pool Corp. (POOL 1.31%). There were plenty of negatives, but for investors with a long-term mindset, the important question is: Did that quarter really change anything about its future? The answer: Probably not.
Here's a quick look at Pool's quarterly results and why long-term growth investors might still like the story here.
Missing the target
Pool reported revenue of $1.2 billion in the first quarter of 2023, which management pointed out was the third year in a row in which its Q1 top line had exceeded $1 billion. That sounds great until you see that sales were 15% below the year-ago figure of $1.4 billion, and a touch below the analysts' consensus estimate.
Image source: Getty Images.
Moving to the bottom of the earnings statement, Pool delivered $2.46 in adjusted earnings per share. That was a huge 42% below the $4.23 it earned in the first quarter of 2022, and missed analysts' projections by a fairly wide margin.
All of that said, it's important to recognize that this retailer's business is highly seasonal, and its first quarters are always relatively weak. As its name suggests, Pool sells products related to pools, which are only used for part of the year in most areas of the United States. Weather also has a big impact on the business, since people don't use their pools when it isn't nice out. The weather was cold and wet in the key markets of California and Arizona in the first quarter, which contributed to a sales decline of 21% across those two states. So there were fairly good reasons for its weak results, which led management to reduce its full-year guidance for earnings per share from a range of $16.03 to $17.03 to a range of $14.62 and $16.12. That's another piece of less-than-inspiring news.
A good and bad thing
The other notable issue here is that Pool is lapping a particularly strong period of performance. During the coronavirus pandemic, when people were asked to stay home and socially distance, demand for backyard pools spiked. Since Pool also sells pool construction supplies, a pullback on that side of the business now that the world is moving on from social distancing is hardly shocking. And Pool stock has fallen roughly 40% from its late 2021 highs.
Yet there's a silver lining here that investors shouldn't ignore. While pool construction and renovation are important for the business in the short term, the company's more material business is selling pool supplies for the maintenance of existing pools. As more pools get built, demand for these types of products increases. So even if the recent boom in pool construction is over, it still left a larger installed base of pools that will contribute to higher overall demand for maintenance supplies over the long term. This is why management highlighted that it achieved over $1 billion in sales in the first quarter for the third year in a row. And that underlying increase in demand is a good sign for Pool Corp's long-term future.
The company isn't slowing down, either. It has plans to open 10 new stores in 2023. In addition, it intends to open an equal number of stores for its value-oriented Pinch-A-Penny franchise. Overall, Pool's long-term growth story appears to remain solid despite this relatively weak quarter. It seems like the stock just got bid up too enthusiastically during the earlier pandemic hype, which led naturally to the recent share price pullback. The fundamental picture for the company will remain fairly attractive even though there will be more tough year-over-year comparisons to periods during the pandemic-driven pool construction boom ahead.
Plenty of room to run
In some ways, Pool is a pick-and-shovel company, offering pool owners the supplies they need to maintain their pools. Demand for pool construction-related products spiked during the hotter phases of the pandemic, and now that part of the business is cooling off. But the new pools that were built have added to its addressable market, boosting long-term demand for pool supplies. The company will benefit from that for years to come. With Pool stock trading at a price-to-earnings ratio of around 21 -- well below its five-year average of 31 -- long-term growth investors might want to take a closer look at this stock, even after its big earnings miss.
