Online Extra: SCP

The biggest fish in the swimming-pool business

Growing up a poor Cuban immigrant in 1960s Miami, Manuel J. "Manny" Perez de la Mesa longed for a swimming pool. A pool, however, was a novelty his parents -- whose home was furnished almost entirely with goods discarded by others -- could ill afford. These days, Manny Perez is the proud owner of two pools, one at each of his homes in Miami and Covington, La. -- and on any given day you can find him extolling the virtues of pool ownership to anyone who will listen. "In my mind, you have to have a pool," says Perez. "If you don't have a pool, you're shortchanging yourself."

And shortchanging Perez. He's CEO of SCP Pool Corp. (POOL ), the world's largest wholesale distributor of pool supplies. He joined SCP in 1999 after a 20-year career in management at larger companies, including RJR Nabisco (RJR ), IBM (IBM ), and Watsco (WSO ). SCP sells everything from chemicals and cleaners to pumps, heaters, fountains, and toys. Formed in 1993 by Chicago private equity firm Code Hennessy & Simmons as a vehicle to consolidate the fragmented pool-supplies market, SCP has since acquired 20 local and regional rivals. It controls about 23% of the $5 billion distribution market, and Code Hennessy is no longer a shareholder.


  The swimming-pool business is thriving these days, driven by baby boomers -- the average pool owner is 45 to 50 years old -- and a strong housing market. Sales are growing at an annual clip of 4% to 5%. And there's plenty more room, in Perez' view. Duluth (Ga.)-based market researcher P.K. Data estimates that 69 million households in the U.S. have the financial wherewithal and the yard space to own a swimming pool, but only 11% of those households have one.

SCP doesn't sell directly to homeowners but to a network of builders, remodelers, independent retailers, and repair and service companies. Perez says roughly 200,000 pools are built each year, with an average price of $20,000 to $30,000, but he believes some 50% more could be installed if there were more builders. "There is more demand for new pools than there are builders to build them," he notes.

SCP, which ranks No.39 on this year's BusinessWeek Hot Growth list, has still made a splash. Over the past three years, sales rose by 19.4% a year, on average, to $1.16 billion in 2003. During the same period, profits climbed an average of 21.3% a year, to $51 million. Analyst Douglas M. Lane of Avondale Partners, who's also a shareholder, estimates that SCP will see a 22.4% jump in profits this year, to $62.4 million, on a 12% sales increase, to $1.3 billion.

Lane attributes the slowdown in sales growth partly to a drop-off in opportunities for acquisitions now that SCP has purchased many good-size players. Also, smaller deals have less impact now that SCP has grown to more than $1 billion in sales.


  Perez, 47, is no longer counting on acquisitions for future growth. However, he can depend on return business: 80% of sales come from supplies necessary for the general upkeep of the 7 million existing swimming pools. "Once you buy that pool, you have to buy the products to keep it up. Otherwise, you'll have a big green glob in the middle of your backyard," says St. Denis J. "Sandy" Villere II of New Orleans-based St. Denis J. Villere & Co., which owns 2.7 million SCP shares.

Five years ago, Perez also began expanding SCP's line to include complementary products -- everything from spas and patio furniture to toys and games. He continues to add to the mix: Next year, SCP plans to include patio grills and concrete patio stone. Such items will account for more than $100 million in sales for SCP this year, up from $3 million in 1999, Perez says.

Perez has an extensive background in distribution. As an RJR Nabisco executive, he worked in the Del Monte canned-food division. Later, he had a stint at a air-conditioning and heating company. SCP Chairman Wilson B. "Rusty" Sexton, who was an executive for the first company Code Hennessy bought, was CEO when he hired Perez in 1999 to, in his words, "take the company to the next level." That strategy has included a focus on internal growth, aiming for greater efficiency, and improving customer service. Perez took the reins in 2001.

Perez sees his role partly as evangelist for the pool lifestyle. He launched an awareness campaign to educate consumers about the joys of owning a pool in 2001. It includes industry Web site, a contractor directory, and marketing kits for contractors to take along on sales calls. Although you won't see its name on them, SCP will run more than 60,000 TV ads promoting the industry this year, part of its $8 million to $10 million annual advertising and marketing budget. That means more business for builders, retailers, and SCP -- and perhaps even a third pool for Perez.

By Stephanie Anderson Forest in Covington, La.

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