Earnings Scorecard: Pool

On October 21, Pool Corp. (POOL) reported its third quarter fiscal 2010 earnings of 45 cents per share beating the Zacks Consensus Estimate of 42 cents. Given below is our report on the recent earnings announcement as well as subsequent analyst estimate revisions over short and long-term periods.

Earnings Report Flashback

Third quarter total revenue increased 6% from the prior-year quarter to $455 million, but was marginally short of the Zacks Consensus Estimate of $456 million.

(Read our full coverage on this earnings report: Mixed 3Q for Pool Corp.)

Earnings Estimate Revisions — Overview

Following the release of Pool Corp.’s third quarter results, estimate revision trends among the analysts depict a mixed outlook. Let’s dig into the earnings estimate details.

Agreement of Estimate Revisions

Over the last 30 days, a negative trend has been noticed for the fourth quarter, with earnings estimates being decreased by 6 out of 10 analysts. On the other hand, an upward revision in estimate was made by one analyst.

Analysts expect gross margin to suffer in the fourth quarter due to cooler temperature. Additionally, several other factors like slowdown in the growth of new pools and depressed valuation of residential real estate will continue to challenge sales growth in the near term.

However, the analysts remained slightly optimistic on fiscal 2010 earnings as 4 brokers upped their estimates while 2 lowered the same. The analysts remained impressed with Pool’s ability to gain market share. The analysts, by and large, are mainly impressed with management’s expectation of free cash flow to exceed net income for 2010.

However, the analysts displayed a negative expectation trend for 2011 as management remains less confident about the Green business.

The trend was almost similar over the last 7 days with only pessimistic outlook observed for the fourth quarter of fiscal 2010 as well as fiscal 2011. However, the analysts have a positive bias on the company for fiscal 2010.

Magnitude of Estimate Revisions

The magnitude of estimate revisions for Pool has been moderate over the last 30 and 7 days. Following the release of third quarter results, estimates for the fourth quarter and fiscal 2011 were both cut by 2 cents. The estimate for fiscal 2010 has been raised by one penny.

Currently, the Zacks Consensus Estimate for the fourth quarter is 24 cents loss per share. For 2010 and 2011, the Zacks Consensus Estimates are earnings of $1.14 and $1.31 per share.

Our Recommendation

We believe the company benefited in the third quarter primarily from a surge in consumer spending and favorable weather conditions. The company is an acknowledged leader in the industry. The potential for market growth is also significant.

Although third-quarter results signaled a turnaround, which came on the back of a slow revival in global economy, we believe, Pool is not yet totally immune to challenges. The company’s margins are expected to remain stressed in the upcoming quarter due to seasonality. Macroeconomic factors like depressed valuation of residential real estate will continue to challenge sales growth in the near term.

Pool currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

POOL CORP (POOL): Free Stock Analysis Report

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