Pool Corp Stock Declines on Weak Demand & Macro Woes

Pool Corporation POOL recently issued a business update for the swimming pool season from late May to early June 2024. The company reported weak demand for new pool construction and emphasized the negative impact of the macroeconomic environment on discretionary pool spending. Consequently, the company lowered its 2024 earnings guidance, anticipating persistent sluggish performance for the rest of the year. Following announcements, the stock dropped 10.9% during after-hours trading on June 24.

Business Updates

Year to date, the company's sales are trending down approximately 6.5% compared with the same period in 2023. The discretionary components of the business (heavily influenced by general economic conditions) have struggled due to cautious consumer spending on expensive items like swimming pools and outdoor living projects. This paved the path for an 11% year-over-year drop in building materials sales.
With the peak selling season almost complete, the company anticipates new pool construction activity to decline 15-20% year over year. The company expects remodel activity to fall approximately 15% in 2024 compared with the previous projection of flat to down 10% year over year.
The company reported stability in maintenance-related product sales, with chemicals reflecting modest volume growth. Equipment sales (excluding cleaners) for the year-to-date period have declined 2% year over year, albeit slightly better than a 3% fall witnessed in the first quarter of 2024.

Lowers 2024 View

Given the headwinds mentioned above and the seasonal nature of operations, POOL anticipates a more pronounced impact on second-quarter results, with expected earnings per share ranging from $4.85 to $4.95. For 2024, Pool Corp expects adjusted EPS in the range of $11.04-$11.44, down from the prior projection of $13.19-$14.19.

Price Performance

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Shares of Pool Corp have declined 15.3% so far this year compared with the industry's 6.9% drop. The downside can be attributed to lower pool construction activity, economic pressures and weather-related constraints. This and the elevated interest rates further weighed heavily on new pool starts. While the decline in new pool construction presents challenges across multiple facets of operations, there is confidence that the downturn mirrors the cyclicality observed historically. Also, increased operating expenses are other concerns.
POOL projects expenses related to volume to align with business activity, while certain costs impacted by inflation, such as rent, insurance and wages, are expected to rise from the previous year's tally. Earnings estimates for 2024 have declined in the past 60 days, depicting analysts' concern regarding the stock's growth potential.

Zacks Rank & Key Picks

Pool Corp currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Consumer Discretionary sector include

Royal Caribbean Cruises Ltd. currently sports a Zacks Rank of 1 (Strong Buy). RCL has a trailing four-quarter earnings surprise of 18.3%, on average. The stock has rallied 58.9% in the past year.
The Zacks Consensus Estimate for RCL's 2024 sales and EPS calls for growth of 16.8% and 63.8%, respectively, from the year-ago levels.
AMC Entertainment Holdings, Inc. currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 38%, on average. The stock has gained 12.3% in the past three months.
The Zacks Consensus Estimate for AMC's 2025 sales and EPS suggests an improvement of 12.9% and 42.3%, respectively, from the year-ago levels.
Strategic Education, Inc. STRA currently carries a Zacks Rank #2. STRA has a trailing four-quarter earnings surprise of 36.2%, on average. The stock has surged 54.9% in the past year.
The Zacks Consensus Estimate for STRA's 2024 sales and EPS indicates an increase of 6.4% and 33.3%, respectively, from year-ago levels.

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