Pool Corp Fills in Cracks to Make Up for Lost Swimming Pool Construction
Pool Corp. is finding sales after a record decline in new swimming pool construction by filling in the cracks, literally.
Pool maintenance, repair and remodeling products will grow “modestly” in 2010 and return to normal by 2015, Chief Executive Officer Manuel Perez de la Mesa said in an interview. Those goods now make up 70 percent of sales, compared with 50 percent in 2005.
“We had to adjust to what the retail customer wanted,” Perez de la Mesa said. “We had to come up with new products and new marketing programs.”
Pool Corp. is focusing on the upkeep of older swimming pools as the industry adjusts to plummeting U.S. home sales. Residential pool construction is down nearly 80 percent since 2005, according to company estimates, and the amount of money consumers spend on in-ground pool installation plunged 76 percent to $1.7 billion last year from $7.1 billion in 2005, according to Duluth, Georgia-based research firm P.K. Data.
The strategy has helped boost Covington, Louisiana-based Pool Corp.’s stock 19 percent this year compared with a 6.6 percent decline in the Standard & Poor’s 500 Index before today. The shares lost 15 cents to $22.52 at 9:58 a.m. New York time in Nasdaq Stock Market trading.
“These were once-in-a-lifetime headwinds against us,” said Perez de la Mesa, 52. “Fortunately, our maintenance and repair components were relatively stable.”
Pool Corp., the world’s largest wholesale distributor of swimming-pool products, buys drains, caulks, pumps and chemicals from manufacturers and sells them to independent specialty stores, builders, maintenance companies and retailers through about 290 sales centers in North America and Europe. About 90 percent of the company’s business is in the U.S.
The average age of a U.S. swimming pool is about 23 years, according to P.K. Data. Vinyl and concrete pools need significant maintenance every 10 to 12 years, including re- plastering, replacing drains and filling cracks, making this year a “sweet spot” for the second cycle, said William Kennedy, CEO at P.K. Data.
Service and repairs for pools are either unchanged or higher compared with last year, according to Thomas L. Hayes and Daniel F. Garofalo, Minneapolis-based analysts at Piper Jaffray Cos. who spoke with more than 30 pool-service companies, according to a June 25 research note.
“We’ve probably hit the bottom of the downward slide,” Hayes said in an interview. “Transforming the model to repair and replace rather than focusing on new pools has been the driving engine for Pool Corp.”
Hayes raised his second-quarter earnings estimate for Pool Corp. to $1.05 a share from $1.01 and has a “neutral” rating on the shares. The average of 11 analysts’ estimates compiled by Bloomberg is $1.03.
Pool Corp. projects that construction will remain at levels not seen since the early 1960s as new home sales remain depressed. Revenue dropped 20 percent in two years, to $1.5 billion in 2009. The company forecasts the decline will end in 2010, and analysts estimate sales of $1.6 billion.
Even if home prices and sales recover, Joan Storms, an equity analyst at Los Angeles-based Wedbush Securities, isn’t sure consumers will splurge on swimming.
“When they finally do get a loan, I think they’ll spend that money on home improvement before they build a new pool,” Storms said in an interview. “The company has done an excellent job transitioning away from construction, but we’re going up against three years of negatives.”