What Pool (POOL) Said on Its Q3 Earnings Call

Key Points

• Q3 sales rose 4% to $1.5 billion, driven by pricing, maintenance demand, building materials and equipment, while new-pool construction and discretionary spending remained weak. Adjusted EPS increased slightly to $3.40, aided by share repurchases.
• Gross margin fell 60 basis points to 29% due to higher freight costs, customer mix and difficult comparisons, while operating income declined 3% to $172 million. Inventory and leverage both improved, and year-to-date operating cash flow surged 47% to $420 million.
• Pool reaffirmed full-year adjusted EPS guidance of $10.87–$11.17 and expects 3%–4% sales growth, including a 3% pricing contribution. Management is preparing for 2027 with a focus on pricing, supply-chain discipline, sales execution and targeted acquisitions.

Pool NASDAQ: POOL reported third-quarter sales growth of 4% as pricing, maintenance demand and building-materials volumes helped offset a cautious discretionary-spending environment and continued weakness in new pool construction.

Sales totaled $1.5 billion in the quarter, accelerating from 2% growth in the second quarter and bringing year-to-date sales growth to 4%. Chief Financial Officer Melanie Hart said pricing accounted for 3 percentage points of third-quarter growth, while volume contributed 1 percentage point.

Adjusted diluted earnings per share rose to $3.40 from $3.39 a year earlier. Lower operating income was offset by share repurchases, which reduced the diluted share count and added about 3.5% to earnings per share year over year, Hart said.

Sales Growth Led by Maintenance, Building Materials and Equipment

President and CEO John Watwood said maintenance and building-materials demand, pricing realization and market-share gains supported quarterly sales growth. Building materials posted its fifth consecutive quarter of growth despite what management described as a muted discretionary environment. Chemical sales increased 4%, primarily due to volume, while equipment sales rose 5% on pricing and healthy replacement activity in products such as pumps and filters.

Pool 360, the company’s digital platform, represented just over 17% of sales, up from the prior-year quarter. Watwood said the company tracks the platform’s progress on a year-over-year basis because its usage is seasonal and generally peaks in the second quarter.

Florida, Arizona and Texas each recorded low- to mid-single-digit sales growth, while California performed similarly to the prior quarter. European sales grew 8% in local currency. Sales to retail customers increased 3%, improving from a 1% decline in the second quarter, while Pinch A Penny franchise sales to end users rose 3% after being flat in the previous quarter.

Commercial customer sales increased 7%, which Watwood said reflected the company’s efforts to expand its commercial opportunity. He also cited growth in larger customer accounts, new accounts and sales trends that outpaced permit data as early signs of progress under the company’s sales initiatives.

Still, management said industrywide new-pool construction remained below prior-year levels, and the irrigation and landscape business continued to face pressure from a challenging housing market. Full-year new-pool builds are expected to be slightly below 2025 levels, consistent with current activity and permit trends.

Margins Pressured by Freight and Customer Mix

Gross profit increased by $7 million, but gross margin declined 60 basis points year over year to 29%. Hart attributed the decline to higher inbound freight costs, customer mix and a difficult comparison with the prior year’s midseason price increases. Continued supply-chain benefits partially offset those pressures.

The company’s larger customers are growing faster than the rest of its customer base, adding gross-profit dollars but reducing the gross-margin percentage, Hart said. Watwood said customers classified as large accounts represent a mid-single-digit percentage of the business.

Pool implemented an August price increase on building materials, which represented about 11% of third-quarter sales. Management said the increase has begun to recover higher freight costs, though additional pricing actions are expected to take effect at the start of the 2027 season. The company also introduced a freight surcharge during the second quarter for products it delivers.

Operating expenses increased 5%, or $13 million, driven by higher incentive compensation, including special sales-team incentives, increased employee insurance costs and outside fees related to strategic initiatives and programmatic M&A. Operating income declined 3% to $172 million, and operating margin was 11.4%.

Hart said headcount was lower than a year ago and characterized the expense increase as not representing a structural step-up in the cost base. For the full year, Pool expects adjusted operating expenses to grow less than sales, with fourth-quarter expense growth below the third-quarter rate.

Cash Flow, Inventory and Capital Allocation

Inventory stood at $1.2 billion at quarter-end, down $39 million, or 3%, from a year earlier despite 4% sales growth. Inventory fell $194 million sequentially as the company sold through peak-season inventory and earlier purchases.

Year-to-date net cash from operations rose 47% to $420 million, equivalent to 115% of net income. Pool expects full-year operating cash flow to exceed net income.

Total debt was $1.2 billion, down from the second quarter, with an average interest rate of 4.2%. The company finished the quarter at a 1.8 times leverage ratio, within its 1.5 times to 2 times target range. It had $468 million remaining under its share-repurchase authorization.

Watwood said capital-allocation priorities remain investing for profitable growth, pursuing targeted acquisitions, supporting the dividend and using excess cash for buybacks while maintaining conservative leverage. He said the company’s M&A pipeline had become healthier than it was several months earlier, although no transaction was announced.

Guidance Reaffirmed as Company Prepares for 2027

Pool reaffirmed full-year adjusted diluted EPS guidance of $10.87 to $11.17, with the midpoint implying nearly 3% growth from the prior year. Its GAAP diluted EPS range remains $10.66 to $10.96, including $0.21 per share of one-time CEO transition expenses recorded in the second quarter.

The company now expects full-year sales growth of 3% to 4%, including a 3% contribution from pricing. October sales were up about 2%, in line with management’s fourth-quarter outlook. Hart said fourth-quarter sales will have a smaller pricing benefit and a greater exposure to discretionary spending than the peak-season quarters.

Management expects fourth-quarter gross margin to be higher than the third-quarter reported rate but lower than the strong fourth-quarter margin recorded a year earlier. Freight expense as a percentage of sales is expected to remain consistent with the third quarter.

Looking toward 2027, Watwood said Pool expects the macroeconomic backdrop to remain broadly similar to 2026 and plans to focus on internal execution. Its priorities include sales excellence, pricing and supply-chain discipline, operational execution and programmatic M&A. The company plans to provide a more detailed quantitative framework with fourth-quarter results and at an Investor Day planned for the first half of 2027.

About Pool (NASDAQ:POOL)

Pool Corporation, doing business as POOLCORP, is a wholesale distributor of swimming pool and outdoor living products. The company supplies pool contractors, retailers, builders, and service professionals with products used to construct, renovate, maintain, and enhance residential and commercial pools.

Its product offerings include swimming pool equipment, pumps, filters, heaters, cleaners, lighting, chemicals, replacement parts, and maintenance supplies. POOLCORP also distributes products for outdoor living, including patio and recreational items, as well as irrigation and landscape-related supplies in selected markets.

Founded in 1993 and headquartered in Covington, Louisiana, POOLCORP serves customers through a network of distribution centers and sales operations in the United States, Canada, Europe, and Australia.

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