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Margin Improvement to Favor Pool Corp’s (POOL) Q1 Earnings


Pool Corporation POOL is scheduled to report first-quarter 2018 results on Apr 19, before market opens.

The company’s robust market presence along with favorable consumer discretionary spending are expected to reflect in the to-be-reported quarter’s revenues. Moreover, despite high cost of sales, Pool Corp’s focus on margin expansion through simplification in business is expected to have benefited its first-quarter earnings.

Over the past six months, the company’s shares have rallied 31.1% compared with the industry’s gain of 12.4%.

Let’s find out how the company’s to-be-reported quarter’s results will turn out.

Robust Brand Presence & Strategic Expansion to Favor Top Line

Pool Corp achieved year-over-year growth in sales for the 30th consecutive quarter in fourth-quarter 2017. For the full year of 2017, net sales increased 8% year over year. The trend is expected to continue in the to-be-reported quarter as well, backed by solid business sales growth and favorable trends in the housing market.

Furthermore, the company’s leading market share position and opportunistic expansion strategies are likely to propel top-line growth. Also, continuous growth in the remodel and replacement sectors of business is a major positive. In addition, stronger consumer discretionary spending is expected to have driven continued growth in new pool construction. The company’s existing pool business witnessed revenue growth throughout 2015, 2016 and 2017, mainly aided by higher replacement activities, and the trend is expected to prevail, going forward.

Subsequently, the Zacks Consensus Estimate for revenues in the first quarter is pegged at $586.7 million, reflecting 7.4% year-over-year growth.

Margin Expansion Efforts & Strong Shareholders’ Return to Drive Earnings

Despite facing increased expenses from labor, delivery and investments in information technology systems and hardware, Pool Corp focused on improving its expense management in each quarter throughout 2017 and as a result, witnessed a year-over-year expansion in its operating margin by 20 basis points (bps) for the full year. Gross margin in 2017 also increased 10 bps in 2017.

Moreover, the company shows strong commitment toward returning more value to shareholders Recently, Pool Corp expanded its share-repurchase program by $150 million. The share-repurchase initiatives reflect the company’s confidence in its fundamentals. At the same time, the buybacks will help it to reduce outstanding share count, thereby increasing its earnings per share. Such healthy capital deployment initiatives would also boost investors’ confidence in the stock.

In fact, in 2017, Pool Corp witnessed its earnings to grow 15% year over year, which we believe will continue to rise in the to-be-reported quarter. Subsequently, the consensus estimate for earnings in the first quarter is pegged at 70 cents, reflecting 75% growth from the year-ago quarter.

Our Quantitative Model Does Not Predict a Beat

Pool Corp does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The swimming pool and lifestyle product maker has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Pool Corporation Price and EPS Surprise

Stocks to Consider

Here are some companies in the Consumer Discretionary sector, which per our model have the right combination of elements to post an earnings beat this quarter.

Hilton HLT has an Earnings ESP of +5.07% and a Zacks Rank #3. The company is slated to release quarterly numbers on Apr 26.

Extended Stay America STAY has an Earnings ESP of +3.03% and a Zacks Rank #3. The company is scheduled to release quarterly results on Apr 26.

Royal Caribbean RCL has an Earnings ESP of +1.40% and a Zacks Rank #2. The company is expected to release quarterly numbers on Apr 27.

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