With summer right around the corner, the time is almost here to try on swimsuits, clean the barbecue grill, and, yes, make a trip to the neighborhood pool supply store. As any swimming pool owner can tell you, maintaining that crystal-clear water is not as easy as it looks. It's not quite as simple as tossing in a little chlorine every now and then. If it were, pool supply distributors such as SCP Pool (NASDAQ:POOL) wouldn't be nearly as profitable.
The company's humble beginnings originated with a single store on the outskirts of New Orleans, La., in 1993. It quickly went on the offensive, with a string of 20 acquisitions over the next decade. Today, the company is the world's largest supplier of pool supplies, equipment, and accessories. SCP Pool's base of nearly 50,000 global customers includes pool builders, professional service companies, and retail outlets. The company sells over 90,000 products from a network of 200 service centers in North America and Europe.
SCP Pool has been a model of consistency, posting steady increases in both revenues and earnings for 10 consecutive years. Within the past three years alone, sales have risen by two-thirds from $672 million to $1.1 billion and net income has nearly doubled from $28 million to $50 million. Meanwhile, over the same span, free cash flows have quintupled from $14 million to $70 million.
Impressive first-quarter earnings released yesterday suggest the streak will remain intact. Net income more than doubled to $4.1 million from $1.5 million on a 19% jump in net revenues to $234.6 million. Furthermore, gross margins improved by a full 100 basis points to 27.7%. Management reaffirmed full-year earnings guidance of $1.60 per share, representing a 16% increase over the $1.38 earned in 2003.
Of course, SCP Pool is not without potential pitfalls. While many former competitors have been absorbed, companies such as Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD) may pose a threat to future margins. Also, operations are geographically concentrated in steamy California, Texas, and Florida, making the threat of inclement weather a constant variable.
Nevertheless, unless a homeowner prefers swimming in murky water, regular upkeep is a necessary evil that accompanies the joys of pool ownership. It stands to reason that recurring sales tied to existing pools represent two-thirds of annual revenues. With 7 million swimming pools already installed in the U.S. and more under construction every day, the future looks sunny for SCP Pool's growth prospects.
Are you thinking of dropping a pool into your back yard? What will that do to the value of your home? Talk about it with other Fools on the Buying or Selling a Home discussion board.
Fool contributor Nathan Slaughter thinks Bill Murray deserved an Oscar for his moving portrayal of pool-cleaner Carl Spackler in Caddyshack. He owns none of the companies mentioned.
