Q4 2020 Pool Corp Earnings Call
Yes.
Good morning, welcome to Pool Corp, first quarter 'twenty 'twenty conference call on.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Mark Joslin Senior VP and Chief Financial Officer. Please go ahead.
Thank you good morning, everyone and welcome to our year end 2020 earnings call I'd like to remind our listeners that our discussion comments and responses to questions. Today may include forward looking statements, including managements outlook for 'twenty, 'twenty, one and future periods.
Actual results may differ materially from those discussed today.
[noise] formation regarding the factors on variables that could cause actual results to differ materially from projected results is discussed on our 10-K.
In addition, we may make references to non-GAAP financial measures in our comments.
Description and reconciliation of our non-GAAP financial measures is included in our press release and posted to our corporate website in our Investor Relations section.
Now I'll turn the call over to our president and CEO Peter around it.
Thank you Mark and good morning to everyone on the call.
Never in my Wildest imagination could I have envisioned a year like 2020, the impact from the global pandemic created both unprecedented challenges and opportunities the demand for our products was unparalleled.
The challenge is to keep up with that demand that while remaining safe were extraordinary but we found innovative ways to get things done and deliver amazing results.
Not be prouder of our employees and all of their accomplishments as they proved once again, while the pool Corp team is simply the best despite uncertain times brought on by Covid thousands of families affirmed at only a pool a patio on outdoor kitchen is a wonderful way to enjoy the great outdoors and a safe family friendly environment.
This heightened interest in enjoying existing pool and outdoor living spaces combined with the insatiable demand for new pool has created an amazing opportunity for our industry.
In 2020, our total sales came in at $3 $9 billion, a 23% increase over 2019 and.
In the fourth quarter, we saw sales growth, an amazing, 44% capping off a phenomenal year by any measure.
From a base business perspective, our sales grew 39% in the quarter and 22% on a year to date basis demand in virtually all of our geographies remained strong with particular strength noted in our seasonal markets.
For context, as I recap the quarter and the year I think it may be helpful to remind you of how 2000 twenty's laid out the year started out strong with revenues up 13% in the first quarter before any real impact of Covid could be felt the second quarter, which started off with sharp declines as COVID-19 related shutdowns took on.
Effect quickly rebounded and we finished up 14% in the third quarter the business fueled by high demand and strong execution continued to accelerate and ended up with sales up 27% and as reported the fourth quarter was even better up 44 per cent.
2020 was also a busy year for us on the acquisition from as we completed four acquisitions three on the blue side of the business and one for horizon Master tile northeastern swimming pool distributors jet line products and our newest addition, TWC distributors all joined the pool core family and are integrating well.
Now, let me provide a little more color on how the business performed in our four largest markets for the quarter and for the year.
As you can imagine all benefited from strong demand and favorable weather conditions, Florida saw revenue in the quarter up 25%, bringing the year to date growth to 16% Eric.
Arizona posted a 36% gain in the quarter and 23% for the year, while Texas revenues grew by 47% in the quarter and 23 per cent for the year.
California still the largest market in the country and the last to recover from the shutdowns grew by 26% in the quarter and 13% for the year.
Overall, our year round markets were up by 32% for the quarter and 18% for the year, while seasonal markets were up 50% in the quarter and 27 per cent for the year.
All markets benefited from strong pool construction trends, which we believe grew about 25 per cent for the year from approximately 80000, new pools in 2019 to approximately 100000, new pool in 2020.
Considering the slow start to the year. This was a big step forward for the industry in 2020 as milder weather late in the year enable builders to make up for lost time.
Looking at our end markets, our commercial pool category was down 8% for the quarter on 10% for the year.
Pricing, 4% of total sales for the company continued softness in the public pool and travel industry is behind the slowdown and we don't see that recovering in 2021, there are some projects starting COVID-19, but the lack of travel is likely to continue to weigh heavily on this market.
Retail sales on the other hand, we're up 34% in the quarter on 24 per cent for the year.
Larger installed base more in season pool usage and consumers trying to stretch the season, all increased demand for pool supplies and maintenance products.
Retail price chemicals automatic pool cleaners, and above ground pools, and spas all had strong growth.
That's a key product level. The story is much the same demand is strong equip.
Equipment sales, which includes pumps filters heaters and life were up 51% in the quarter and <unk> 31 per cent for the year due to significant construction backlogs and favorable weather conditions. Most of our dealers kept building and remodeling, which helped drive the strong increase in equipment sales.
Sales in the fourth quarter were up 16% and 10 per cent for the year as I mentioned demand for consumer sized chemicals was very strong throughout the quarter and the year, but commercial pool commercial commercial pool chemical demand decline with a COVID-19 driven diminished use.
For the upcoming 2021 season, I'd expect supplies to be tight, but manageable from most chemical products with tri floor, a very popular pool sanitizing products being a notable exception in this case the industry lost significant production when a major plant was destroyed by a fire in August which accounted for approximately 40%.
Sent at the industry's capacity of this product either.
I'd expect to see the fly ash price or be very tight and prices elevated depending on how much additional capacity comes on line and how much import product can be sourced to supplement the constrained supply.
Certainly weather will play a role in determining how the supply and demand balance works out for cattle.
Building material sales a great indicator of the health of the construction and remodel segment are strong in the fourth quarter, we saw sales grow by 42%, bringing the year to date 2020 sales increased to 23%.
We are quite happy with this result, given as I said earlier the uncertain in the late start to the construction season in many of our seasonal and some of our year round markets.
When you look at the results of our business across the category is evidenced that we took significant share in 2020, the contributions from our seasoned and customer focused teams utilizing unique tools and resources available to us allowed us to adapt and thrive in the COVID-19 environment better than anyone in the industry.
Turning to Europe. This is a continuation of the same strong story that we discussed during our third quarter update Europe had a very robust quarter. Once again and grew revenues by 48% in the quarter and 24% per the year continued strong demand favorable weather and excellent execution on all contributed to a great year for Europe.
As well what makes this results even more impressive is it Europe felt the impact from the virus sooner and experienced more pervasive shutdowns and restrictions than most of the north American market.
Yeah.
Now I'd like to switch gears and provide some commentary on our green business Horizon. We're pleased to see this business continue to gain momentum and growth for the quarter Horizon based business was up 13% and 9% per the year.
Our on demand for residential construction and outdoor living fueled by growth in the year round markets that we serve.
Additionally in December.
We completed the acquisition of Pwc district, the distributors with 10 locations in these strategically important market of central and southwest, Florida, We continue to invest and improve and horizon and remain very optimistic about the future growth opportunities and the green business.
Moving to gross margins, we saw our overall gross margin increased to 28, 5% in the quarter, a 70 basis point increase from the same period last year.
For the full year, we finished at $28 seven down 20 bps.
When compared to a full year of 2019, the slight decline on a year to day basis was primarily driven by stronger big ticket lower margin product sales as we discussed in prior quarters.
Turning to operating expenses, we're very proud of our performance in this area as we saw operating expenses as a percentage of sales improved by over 300 basis points for the total business and over 400 basis points for our base business in the quarter on.
On a year to date basis, we improved by 130 basis points in the total business and 150 basis points from the base business <unk>.
Contributing to our success with continued strong growth in sales through our pool 360, <unk> tool, which became especially useful for customers with the onset of COVID-19 and restricted access to our sales centers for order processing.
For the year, we saw from $3 60 sales increased 40% and this is on top of a 30% increase in 2019, clearly our focus on capacity creation and the hard work of our team is paying off.
Wrapping up the P&L I'm thrilled to report that our operating income for the quarter was $74 $4 million.
This is an amazing increase at 188 per cent for the year operating income was $464 million an increase of 36 per cent.
Operating margins were 11 eight per cent for the full year of 2020 compared to 10, 7% for the full year 2019.
And you can all see 2020 was an incredible year for the business on every level. Our teams focus on service and value driven organic growth combined with stellar concentration on safety capacity creation and execution, all while working towards being the employer of choice. We're second to none our team performed at an.
<unk> level on we are humbled by their efforts if that's not impressive enough. We added four strategic acquisitions and opened two greenfields and what had to be the most challenging operating your imaginable.
In addition in October we celebrated 25 years as a public company, having delivered a remarkable 28% total shareholder return over the time period. When we were recognized for our consistent growth I being added to the S&P 500.
2020 is now in the rearview mirror, but the operating environment.
And market conditions are largely unchanged as we turn the page to 2021 builders report large backlogs in virtually every market that should carry us through the first half of the year and perhaps beyond.
Strong housing market with the continuation of the day urbanization and southern migration trends and the public's desire to find safe outdoor spaces for family Recreation and entertainment are helping position 2021 as another strong year.
The work from home trend is likely to continue expanding which bodes well for investments around the home, particularly in our backyard.
Our supply chain, which we're certainly stretched our capacity in many areas held up well in 2020, our size and scale allows us to keep product flowing to provide unparalleled service in a challenging year as we exited the year, we saw our back orders drop on our inventory increase as the manufacturers work to clear backlog and ship the Rsi orders.
As the season starts were in great shape.
We are in great shape to provide the products that our customers need early indications are new pool construction activity will remain robust keep in mind, the weather and labor availability are the two most significant external factors and the industry's ability to satisfy the increased demand that we're seeing.
Lastly, we should start to see the benefit of the department of Energy's regulation on variable speed pump applications in the back half of this year, but most of the benefit will be seen in 2022 as the channel inventory is depleted.
In the first half of the year, our comps will be much easier than we will face in the second half as the industry will no doubt bounce up against labor constraints and potentially less favorable weather than we saw in a very strong second half of 2020.
We also realized growth from acquisitions closed in 2020, and expect overall inflation to be two to three from in the 2% to 3% range in 2021.
Taking all of this into consideration, we expect to see revenues growth in the upper single to low double digit range for the year with some pressure on gross margins as Mark will discuss in operating margins growing in line with our historical 20 to 40 basis point improvement range.
From a capital allocation perspective, our approach remains essentially unchanged, we will invest what we need to maintain our business and add growth capacity provide an increased dividend to our shareholders and continue to buy back shares Opportunistically in line with our authorization from the board of directors we.
We anticipate opening an additional eight to 10 sales centers in key locations for both the blue and the Green business and expect to make additional acquisitions as we continue to hunt for strategically important businesses to add to our platform both here and in Europe.
Considering these assumptions, we would expect EPS to be between $9.12 a share and $9 62 per share which includes an 11 cent benefit from ASU 2016, Dashville line, excluding the ASU benefit in both years. This is an increase of 7% to 13% over our very strong 2002.
'twenty results.
In closing I would like to thank our customers suppliers and especially the pool court team for their support and dedication I will now turn the call over to Mark Joslin, Senior Vice President and Chief Financial Officer for his commentary on perspective.
Thanks Pete.
I'm going to provide some financial highlights of our results for the quarter on year.
And then comment on 'twenty 'twenty, one on how we see that rolling out at a high level.
First the fourth quarter.
In case it wasn't clear from Pete's comments, how we felt about our fourth quarter performance I'll start with my own perspective.
If you were somehow able to hire Michael Angelo to paint a picture of the perfect quarter. It would look a lot like our fourth quarter.
Phenomenal sales growth significantly improved gross margin and low expense growth relative to the level of sales and gross profit growth, resulting in double the operating margin from a year ago and operating income that was on the cost of <unk> three times last year.
Add to that improved working capital management and strong cash generation very low leverage year end ROIC C of almost 40% and execution on two strategic acquisitions and you end up with the kind of quarter that for me at least is a once in a career event.
Yes, Covid inspired home confinement and favorable weather conditions helped to supercharge industry demand, but the ability of our team to execute through all the challenges and frenzy and stay focused on meeting our customers' needs as they've done all year long has been remarkable and as Pete said very humbling to us.
We truly appreciate all of the efforts in response to adversity, our team has demonstrated.
A couple of highlights of our financial results, starting with the acquisitions as I mentioned on our third quarter call acquisitions added the expected 4% to our top line in Q4 and had a dilutive impact on operating income.
This is because these businesses are predominantly northern market focused and have a lower gross margin profile relative to the rest of our business.
I'll discuss how we expect these businesses to impact our results in 'twenty 'twenty one in a few minutes.
Focusing on our base business results. Our gross margin was up 90 basis points on the quarter, which was primarily the result of volume based incentives earned from manufacturers given our performance for the quarter and year.
For the year. These volume incentive gains were offset by lower margins from the sales of big ticket items as we've discussed all year, resulting in our 20 basis point decline in gross margin for the year.
Moving to expenses as we've discussed on past calls and in our release significantly higher performance based compensation impacted our results for the quarter and year. These costs were up $12 million per the quarter and $44 million for the year compared to last year.
Excluding incentive cost increases our base business expenses were up 5% for both the quarter and year, which is remarkable given our sales growth as Pete mentioned this demonstrates the success we've had from expanding the use of our pool of 360, b to B platform and other capacity creation initiatives as well.
The reduced spending on discretionary items.
Incentive based compensation is an important part of our culture of rewarding our employees for the value they create while keeping our fixed cost tremor when times are tough.
The merits of this model are apparent in 2020, we're stockholders I wear both stockholders on employee shared on the company's substantial success proportionately.
About 15% of total operating income was earned by employees through these incentive systems in 2020, providing substantial pay per performance for our employees, but leaving the bulk of the gains on the business.
Our incentive pay opportunities exist for employees at all levels and for 2020 included five on a half million earned by our hourly employees, who work on the front lines of our organization, primarily on customer fulfillment and logistics rolls, which are very important to our success and in 2020 carried an unprecedented set of challenges.
<unk>.
About half of these employees are in the maximum 2400 dollar cash award for the year.
Moving down to operating income the leverage we generated from expense management resulted in a more than doubling of our base business operating margin in the quarter from four 5% last year to 9.7% this year, resulting in a tripling of our operating income from a year ago.
On a year to date basis, our operating margin climbed 120 basis points to 12%, which is a new high for us.
On the tax line, we benefited from option exercises that reduced our tax rate by $6 million or 15 cents.
For share for the quarter and $29 million or 70 cents per share for the year. Excluding this our tax rate for the year was just over 25% similar to what we've done in the past and for now at least what we expect for the future.
Moving to our balance sheet and cash flow statement. There are a few things here I'd like to point out first growth on our primary operating assets over last year with total net receivables up 28% on inventories up 11% reflects our business growth additions from acquisitions and improved.
Asset management throughout the course of the year.
For receivables, we ended the year with DSO or days sales outstanding of 26 on a half days an improvement of 9% from 29 days last year, while we improved inventory turns 19% from free 0.2 times last year to three eight times in 2020.
Combined with our exceptional earnings growth. These improvements helped us achieve an all time high Rois see a return on invested capital of 39% this year compared to 29% last year and cash flow from operations that was 108% of net income.
Other highlights here include our prioritization of cash use for acquisitions on which we spent $125 million in 'twenty 'twenty.
For the best for the four businesses. We've discussed we've also returned money to shareholders through dividends, which is $92 million were up 10% over last year and through share repurchases, which were $76 million for the year.
Doing that we still ended up with debt, which was down $95 million year over year.
Our year end leverage was virtually half of what it was a year ago at 0.86 times compared to 1.61 times, a year ago, giving us tremendous amount of financial flexibility.
Despite being below our target leverage range of one on a half to one on a half to two times, our capital out our capital allocation priorities remain unchanged for the foreseeable future.
Turning to our expectations for 2021, I'll start with our fully diluted share count estimate by quarter, excluding any potential share repurchases.
For each quarter, except the first I'll give you two numbers our estimate for the quarter followed by year to date.
For Q1 $40 million 992000 shares.
For Q2 $41 million 128000 shares and for year to date 41 million Oh 83.
For Q3 41 million to one five year to date 41 135.
And for Q4 of 41, 297 and year to date, a 41 150.
Okay.
Now let me give you some added color on our 'twenty 'twenty one guidance.
You noticed that we have a fairly wide EPS guidance range, reflecting more on certainly uncertainty than usual in the year ahead.
First on the list is weather.
Which given the warm and dry conditions were experienced in most of our markets for much of 2020 will likely be a headwind in 2021.
The impact of Covid on stay at home trends, including consumer spending on home living and entertainment was of course, a very positive influence on our business that started midway through the second quarter and accelerated throughout the balance of the year.
Those trends are continuing and we expect to start off 2021 with demand conditions similar to our ending in 2020.
And which could carry us well into the year.
How those conditions evolve on the back half of the year, where we have strong comps from 2020 remains to be seen.
Although we are optimistic about the long term implications for our business.
The heightened demand we are experiencing as well as COVID-19 impacts to both carriers and suppliers could disrupt our supply chain, we managed to work through supply issues on 'twenty 'twenty to minimize the impact on our business and are building inventory ahead of the 2021 season.
What mitigates some of this risk.
Industry capacity is another potential concern given a particularly in the peak seasonal second and third quarters.
All of these issues create uncertainty on our outlook, particularly on the back half of the year.
Per sales, we expect the greatest growth from the first half of the year, particularly the first quarter with less favorable comparisons in the back half of the year, including a likely decline in Q4, if the weather is not as favorable or demand slows.
Overall, including acquisitions, which we expect to add 4% to five per cent to base business growth for the first three quarters sales growth is projected to be in the upper single digit range or even low double digits for the entire year.
Specific to our 2021 gross margin.
There are three issues here, which impact our historical normal flat gross margin expectation for the year similar to last year, we expect greater sales mix of big ticket items with lower margins, particularly on the first half of the year second vendor volume incentives that offset lower big ticket margin Martin.
In 2020 are likely to be a headwind in 2021, and some tiered vendor incentive programs reset off last year's high volume levels.
Finally, our 'twenty 'twenty acquisitions came with substantially lower gross margin than our existing business, which longer term is an opportunity for us.
Altogether, we could see gross margins declined 20 to 40 basis points for the year with margin gains early.
Follow up by increasing declines as we move through the year.
Moving down to our expectation on operating expenses for the year, we have opposing forces at work here the level of business activity, we have experienced and expect as well as the deferral of hiring needs throughout the 2020 season has created some greater than normal staff growth needs heading into the 2021 season.
At the same time, our expenses should benefit significantly from a decline in incentive based compensation costs of $30 million to $35 million in 2021 with higher year over year costs in the first quarter and declines in the ensuing quarters.
As noted in our release, we also anticipate a four and a half million or 11 cents benefit in the first quarter from vesting of restricted stock and options that will expire if not exercised we don't attempt to forecast other ASU tax benefits for the year.
Finally, after a pause in capital spending early last year in response to Covid.
We expect to resume new location development, adding eight to 10, new sales centers in 2021 with capital spending returning to our historical range of approximately one percentage of sales.
In summary, there are a number of moving parts to our expectations for 2021 pool. We are confident our team will respond and we will see solid growth and execution for the year.
Operator, I'll turn it back over to you to begin our question and answer session.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone sales.
You're using a speaker phone please pick up your handset before.
Pressing the keys.
To withdraw your question. Please press Star then two.
Our first question is from David Manthey from book go ahead.
Hey, guys. Good morning. Thank you for taking my questions I just have three three questions. A quick ones here first off on the base business growth. I think you said 13 for Green what was the Blue base business growth and could you give us the pricing component for.
Each of those.
Sure.
On the for the quarter, the Green business was 13% and for a year it was nine.
And for the total so from a pricing perspective, let me give you the answer on pricing on that I would say pricing in the Green business was was not that substantial it was in the one day, probably one five per cent range.
On.
On the Blue business.
Base business growth was.
In the 23% range and pricing last year was fairly normal so let's say like on the one to two per cent range.
Okay.
And then on your guidance does the you mentioned the weather and I agree with that because the high end of the guidance.
Still assume that weather in 2021 isn't as good as it was in 2020 or does it assume that on the high end that is the same but on the lower end, but it's it's much worse can you just talk about the the weather component relative to the guidance.
Yeah sure David Good morning.
In terms of the guidance on that and whether we we didn't in the eye and anticipate similar weather to 'twenty, 'twenty, but maybe a little bit more favorable than normal and the low end would be a little bit less favorable than normal. So we usually start the year on our.
I would say the midpoint of our guidance range anticipates normal weather for the year.
The best way to characterize it.
Okay, and then just a last one quickly on the early buy pre buy a special buy any thoughts on.
Your inventory.
Coming into the season.
Yeah.
I mentioned the manufacturers were we're very busy right through the end of the year. So normally they would ask started shipping kind of midway through the fourth quarter.
They didn't really start to ship in earnest until the very tail end of the fourth quarter and and are now.
In the midst of a shipping that so we expect normally we would have it in place you know complete by January February this year it will be towards the end of the first quarter, but will begin will begin to season fully stocked.
Got it just a follow up on the on your question on the Blue business I think Pete answered due for the year to date up 23% growth for the quarter was 42% growth. If you if you didn't catch that part.
Oh, Okay, alright, thanks, so much guys.
Alrighty.
Our next question is from Anthony Lye, Benin scheme from Sidoti and company.
Yes. Good morning again, thank you for taking my question so yeah.
I remember six years ago, you guys were still moving money actually in the fourth quarter, so quite a remarkable quarter for sure.
So Pete you mentioned that you gained market share.
Could you give us a sense as to you know could.
Could you quantify perhaps how much you think you gained market share on either for the quarter for the year.
Yeah, Anthony good morning.
Good question, it's really at this point, it's hard for us to say because we haven't seen the final.
We felt on construction for the year. So I mean by the end by the end of the first quarter, we should have a much better feel.
So I wouldn't want to quote a number right now, but I can tell you that.
We're comfortable saying that that we gained share in the year, but it's hard for me to give you the exact number without the without the final pool accounts.
Got it.
That's that's fine how are.
You mentioned.
Some supply constraints for cash.
Is there anything else.
You guys.
And about as far as just from a supply chain constraint perspective.
Yeah, I think everything is going to be tight right. I mean demand is still very demand is still very robust all the manufacturers are very busy trying to shift the early buys so normally do with the seasonality of the business by the time the the third quarter comes around they've essentially everything is caught up.
Replaces their early buy orders beginning of fourth quarter. They start shipping. The difference. This year is they kept on shipping and it really is across the board I can't it's chemicals are going to be tight but on the equipment side.
Sales were very strong so everybody is working diligently to get the early buys into our warehouses. So that we have them for the season starts.
Yeah.
Got it Okay and last one from me so.
I should say still got you.
So can you.
Give us a sense us.
Not you're.
More focused on the growth titles or blue side.
As far as growing through M&A and is there any particular geographic focus for acquisitions going forward.
Anthony Yes.
You were breaking up through a lot of that so I'm not sure I got 100 per cent of the of the.
Question could you quickly repeat Oh, yeah sure sure Yeah, sorry, sorry about that so as far as acquisitions going forward are you focused more on the green side or blues side or and is there any particular geographic focus for acquisitions.
Yeah sure on the acquisitions, where we're we have a very active pipeline for both businesses in.
In the as I look at the geographic breakout of that in the Green business. As you know we are basically in year round markets and that's where our focus will continue I don't see us getting into seasonal markets in the green side on the Blue side I would tell you is that we have some targets that are that are in the seat.
From a market, but obviously the sweet spot for us is in the year round markets.
Got it all right. Thank you and best of luck. Thank you.
Our next question is from Ryan Merkel from royalty on but go ahead.
Hey, everyone. Congrats on another strong quarter.
Thanks, Good morning Tomorrow.
So first of all the high level question, if the world returns to some normalcy in the second half of 'twenty, one with a vaccine how might this impact your business if at all.
I guess, here's what I would say.
Hopefully the world does return to some normalcy with our with the vaccine, but I think if you look at the Mega trends, which I called out in my comments I think they are intact, I think youre going to see more people continuing to work from home, which I think bodes very well for us with the continued demand.
In pork per backyard in outdoor living.
I think the southern migration is going to continue I think the strong housing market is going to continue in all of those things are.
We are very positive for us.
So I'm assuming that there is a there is a vaccine and.
Everybody gets a little bit calmer about what's going on I really don't see much changing as it affects the business again, the two biggest limit so meaning I think backlogs are going to remain.
Good and strong the two biggest limiting factors, we're going to have on the industry as weather and labor.
Alright, so yeah, you've kind of answered my follow up because it sort of seems like maybe in the second half of 'twenty, one you're guiding to low single digit organic growth something like that but if some of these themes are secular it's really just weather and labor.
But that's baked in your guidance, there's no there's nothing that happened in 2020, that's one time for won't repeat in 'twenty one is that correct.
Yeah, I don't we don't see anything that says Wow, Okay that was a that was on.
Cliff that we will fall off so certainly demand was robust the season was offended it opened earlier and went later so those things are those things are good in a normal in a normal year pools wouldn't open as soon as they did last year right. This year I think that same pattern is likely going to repeat but what is also different about the future market.
Compared to the past is I think you'll have more people working from home.
Which again I think bodes well for investment in the backyard.
Yeah, just one thing I'd add there Ryan as you know we did four acquisitions last year three were done by the fourth quarter. So they were all they will all contribute for the first three quarters on a year over year basis that kind of 4% to 5% growth and then the force fourth quarter, we won't get to the growth.
On it from those acquisitions as they as they lap last year.
So that that is a little bit of difference in the fourth quarter versus the other.
Orders of the year.
Got it and then just lastly, the outlook for irrigation landscape business day 21 did they see the same boosted the pool or blue business did in 2020 and yeah. Just what do you think the outlook is the same themes continuing is my guess.
Yeah remember Ryan that businesses is more closely tied to new construction right. The.
So every time it so it is new construction in the housing market and both of those are both of those things remain strong.
In the pandemic environment, perhaps grow any faster.
So there's really no change in that so when the maintenance component out there, but we think that construction for end demand.
For renovation and remodel of our backyard as the housing market continues to be robust as good. So we like the growth prospects for that business in two.
2021 and beyond.
Perfect. Thanks, I'll pass it on thanks.
Yes.
Our next question is from Alex <unk> from bearing book.
Go ahead.
Good morning, guys. Thanks for taking my questions tacking onto the last go on about the guide in the second half of the year at least from a sales standpoint, it seems like it could be a bit conservative because if we do see municipal and commercial pool at more normal levels, you would see an incremental benefit from <unk>.
Explain the visibility into that market from a new construction and repair and maintenance standpoint.
Yeah remember on the commercial side, it's just it's a very small portion of the business right, it's less than 4% of our total so even if there's a big increase in commercial which honestly I don't see at this point.
I don't think that.
I don't think that we.
We will see GAAP benefit in that in that area. So.
The way I think about it is it's so small that if it does if it did come back I think the impact would be would be limited the biggest impact on the 2021 season that IC will relate to whether.
Weather.
I think demand is good it all depends on how many working days and teams will have to get those projects done.
Okay understood.
And then secondly, based on industry projections for new pool builds in the next five years should we expect some gross margin headwinds in the medium term as these big ticket items make up a larger portion of the overall mix.
Yeah, I'm really when we're talking about big ticket items, Alex it's it's not so much a construction related it's more of the.
Spas on and are some of the equipment sales and above ground pools. So we don't see the same kind of big ticket impact on gross margins after we get through.
This year more of the Covid driven kind of accelerated demand.
And returned to more of a normal type of demand environment going forward. So it shouldnt be as much of an impact so I would anticipate more a flattish gross margins on a year over year basis. After this year.
Okay. That's helpful. Thank you both.
Sure on.
Next question is from Stephen Volkmann from Jefferies Go ahead.
Great. Good morning, guys good morning, David.
Peter I think you mentioned that are the consumer side of the business was quite strong and I am curious if you guys think theres been any change in kind of the end market trends of people sort of taking care of their own pools versus people hiring contractors, just any color there would be great.
Sure.
As we talked to as we talk to dealers.
It's everybody's busy right. So the guys that have their pool routes there.
They're busy they're seeing an increase I really think that the increase in demand that we're seeing on the retail side is just driven by more usage I don't think there's a big trend that says I'm going to I'm going to do with myself versus having it done for me I just think that it's an increased usage pattern on the pool, that's driving the increase at the at the retail level.
Okay, Great that's helpful.
And that does blue grow faster than green in 'twenty one.
I would say that the blue business is going to grow faster than the green simply because of a couple of factors I think the backlog in that we're seeing in the pool business is stronger than what we're seeing in terms of new construction in the markets.
Seasonal and the euro on markets that we play in.
I think that contributes to a more robust market plus if you look on our acquisitions most of our acquisitions were in the blue side of the business.
Okay, all right understood. Thanks, and then the final thing quickly I mean, I think Pete you said everything is tight this year and it sounds like youre, gaining a little bit of share I'm guessing part of that is because you have better availability than some.
Why wouldn't this be the year to sort of push an extra point of price through and kind of move that gross margin.
You know it's a C.
That's a really good question, but remember we have to be we have to be competitive. So we in the markets that we play in today.
We're not the cheapest in the market, but we have to be competitive so on.
Our service is better we get a premium for that we believe already as evidenced by we every time, we do an acquisition we need to look at what everybody else is doing so I think there is a there is a premium but at the end of the day, we have to be competitive.
Okay got it thank you yeah.
Our next question is from David Macgregor from Longbow Research go ahead.
Hey, good morning, everyone and congratulations on congratulations on all the execution just a quite impressive.
I guess, if we isolate the 'twenty 'twenty, one consumables and the non discretionary sales to the expanded install base.
What does that contribute to consolidated revenue growth for 2021.
Yeah, so consider that the.
I think by the end of the year it'll be 100000, new pool right. So in the installed base was in the five four to $5 5 million pool, So you're talking on what I.
One and a half almost almost a 2% increase in the installed base growth.
So I would look at that and inflation as your as your as your marker got it.
Okay.
And I guess, what what's your best guess of what weather contributed to growth.
And in the fourth quarter.
Our fourth quarter.
Oh, sorry, yes, I would say something like a two to three per cent for the year fourth quarter, or certainly more significant where normally and seasonal markets, particularly you have freezing weather coming in and shutting the market's down this year both because.
Weather was mild and there's a big backlog from builders.
And in the remodel guys you know the much of the seasonal markets remained open.
Throughout most of our most of the fourth quarter. So you know it's hard to parse how much specifically was weather because demand was also very strong but it was a significant contributor.
Is there any way you can look at just isolate those December comparison.
And then come to a conclusion from that or the number of work force workable days.
Is there any way to sort of look at metrics like that and help us.
Not here on the call [laughter], okay. Okay.
If we dug down into it we could probably make some educated guesses to figure that out a little bit more but you know that.
Whether you have to look at both this year and last year and it varies by market.
The year round markets not so much of a question, but really Midwest northeast Central East. So you know there's a lot of our.
A lot of educated guesswork that goes into that.
Hum.
And then just can you talk about the extent to which you've baked additional stimulus into your guidance or maybe have not baked that stimulus into the guidance.
Yes, as stimulus really isn't baked in per se.
The customers that are buying our products by and large you know stimulus is not a big part of their spend.
So I don't think that will have much impact on what we see in terms of demand to our business. This year. You don't think that was a factor on the above ground pools.
Well, yes, but above ground pools are such a small part of our business I mean sure. It's great we'd love to see the demand there and the and the growth, but you know it's less than 1% so not not a big impact to US last question from me is just on M&A and so we saw some acceleration from you on 2020, so what changed in terms of valuation.
<unk> or where people dealing with turnaround situations just ready to throw in the town. So what accounted for the acceleration.
Please go ahead.
Yeah I think.
As business peaks and and it gets everybody is having a very good year.
And then they start to explore their strategic options on what they wanted to do so certainly most folks that on a business. When it comes to that time in there like all right I'm going to work through my succession plan and one of the options is to sell.
They look at what's going on right now and everybody wants to sell at the peak I would tell you that we are strategic buyers.
So we look at what's going on now we looked at what's gone on in the past we've not seen valuations are skyrockets.
I think we are a disciplined buyer.
We look for strategic acquisitions that makes sense. If you look at our footprint in most areas.
On the Blue side in particular.
Got a great footprint, we've got great market share in most places so it doesn't justify us to pay a huge premium to go buy somebody else. So.
Is there is there some upward movement, yeah, but I would tell you it's not nothing thats really notable.
Are you still looking for 25 per cent pretax are always see but from your four yes. Okay. Thank you very much gentlemen, yes sure.
Our next question is from Ken Zenner from Keybanc go ahead.
Good morning, everybody.
Good morning, Marty.
I apologize here, it's going to be more than two questions. If that's okay with you guys.
First question is going to be for Michelangelo.
Yeah.
You kind of give us a sense of your first half versus second half <unk>.
<unk> per share mix, that's in your guidance at the midpoint, usually you do about 62% 60%.
In the front half I mean does it.
Just to help us walk through your you know youre thinking a little bit I think what would help.
Yes in terms of how we see earnings per share yeah first Hal on growth.
By quarter accurate.
No no no not by quarter, but just usually you do about 60 per cent of your earnings in the first half and I just.
I'm interested to see if that's going to be dramatically different given.
Covid comps I guess.
Well.
For sure it'll be different I mean, you know and as we've said.
First quarter is benefiting from you know similar trends that we saw on the fourth quarter.
It had been relatively mild to this point, we don't know what's going to happen for the rest of the quarter, but we had strong I expect a very strong first quarter, so higher growth.
Second quarter looks very good as well less certainty going into the back half of the year.
So you know.
In terms of our year.
Second quarter is the biggest quarter third quarter second first quarter third fourth quarter fourth. So if you got it okay. Let me, yes, I mean I get it let me ask you. Another way do you think seasonality, meaning the normal because your business is there it has a very.
[noise] predictable cadence right just <unk> seem to have returned to the normal seasonality versus <unk>.
This is another way to think about it.
I'm, sorry, say that last part again too.
Three Q seasonality versus <unk> and <unk> versus <unk>. So wherever we are right. Your wherever your business is running you know in June July.
Does that normal seasonality would prevail at that point wherever those sales are.
That another way to think about it I'm just trying to yeah, yeah, yeah normal seasonality. So obviously.
Covid extends the season. So you had benefited in the third and fourth quarter of last year from pool owners, keeping their pools open longer we sold a lot of heaters, we know that they were using the barrels that drove chemicals and maintenance and we expect certainly the same conditions going into the season. This year. So early on.
Openings in probably benefits there to extend the season the back half of the air man not as clear what's going to happen with the seasonality Kids go back to school are hopefully and so you know well the season to be extended this year and in the third quarter not as clear.
Right. So my sense is like there's clearly a lot of you know despite.
Despite all of the demand there is still a lot of pent up demand in the system. So if you could you guys. Peter maybe just for you you know.
What are some industry innovations that can accelerate or is demand, which as you know I think labor is obviously, a big part about that but can you talk about how that might be in the service side of the business and perhaps some innovations that are occurring on the new construction side that are mitigating labor intensity. If you could just.
Give us the picture there a little bit.
Yeah on the on the new construction side, there arent that many differences the biggest difference in total as it affects new construction, but it's still such a small percentage as fiberglass. So if I look at our fiberglass pool sales, they're almost double in terms of units.
In dollars to on a year over year basis, and the reason is because it's much faster to install fiberglass pool than on than a vital pool and certainly a guy pool, but it also makes up a very small percentage of the total so there isn't a whole lot of innovation that goes on I mean, you still when you build a concrete pool. It still has to it still has to say.
Net for the same number of days before you can finish it. So you really can't speed up the curing of the product. So I don't really see much changing in any amount of time that it takes to build a pool and I don't see a ton more labor coming into the system. So I would say new construction fairly stable.
On the on the maintenance side, there is more remote monitoring although the things that can be monitored remotely are still more rudimentary theres not a complete package out there for remote monitoring and you still from a from a pool cleaning perspective.
On the professional still have to visit the pool to physically do the things that they have to do like clean the strength baskets and and brush the pool and such.
Excellent and then my last question.
For an organization like yours to meet this type of.
Demand.
Well a.
A lot of pool activities outside there's obviously you have warehouses I think you've.
Gathered a lot of market share is my sense.
Because you have gets better supply change that other people can you I mean, you talked about the bonuses that employees got but can you talk a little bit how you negotiated through all of this.
Yes, you too.
Team is working very well collectively I'm sure you wouldn't take all the credit for it but like Cisco.
Let's go into a little bit.
Little more detail about how you know like N. P. T. I've had a pool of renovated recently I mean, you're just delivering so much what is it really that is occurring at this local levels. I mean, just give us a little granularity. Please thank you very much.
Yeah, I felt at the local level, we've done a lot of work in the last couple of years for our capacity creation right. So we've changed our processes and in some of the equipment that we use to pick orders, we actually measure time too.
Median time to serve to serve our customers at the branch. So everybody is focused on bringing that time down.
And that's with some warehouse innovation, it's on process innovation debt.
That is certainly helping pool 360 is helping the remodeled showrooms, where we have some of the maintenance items that people use on a day in day out basis, rather than having to put those orders in and wait for somebody to pull them. They can walk in may grab on walked at a counter and signed for them. We have our technology tools pool 360 has seen a very nice.
This increase in use so a lot of customers are entering the orders before they come if they even come we're delivering them.
There are blue streak, which is another app, we use which certainly speeds the.
Speeds the counter.
Our app, our NPT App, which allows folks to do a lot of the work that they would normally do when they are designing a pool before they get to the MPT center, even if the even if they come to the MPD design center, because they can envision their pool and basically place it in their backyard with an augmented reality app. So it really is a host of things.
Things that we've been doing on the delivery side, you know our truck utilization and routing improvement software is is also helping so Ken there's not there's not one thing that probably isn't 10 things, but they all contribute to.
What we have going on plus it's frankly, just a whole lot of hard work by our team.
Yeah, Yeah, I mean, it's really amazing so.
Mark.
What's the tax rate. Thank you that's it.
A question on the tax rate is what is it going to be I guess I think I.
I covered that briefly just our tax rate is it a little bit over 25 on a half 20 out of 25 per cent. So close to 25 on a half when you back the ASU benefit out of it and that's the base rate that we would expect for 'twenty 'twenty. One so no change and then just layer in the ASU benefit of 11.
From the first quarter.
Great. Thanks.
Yes.
Thanks, Ken again, if you have a question. Please press Star then one.
Our next question is from GAAP from boys from Loop capital go ahead.
Hi, This is Jeff Steven from on for Gary. Thanks for taking my questions on my first one on let's just say have you seen a quicker payback period on new branches, turning profitable due to the robust demand environment I'm. Just wondering if that's part of the reason youre looking to open eight to 10 Greenfields this year.
Yeah. Good question. So we had planned to open eight to 10 last year as well because the market continues to expand and on our value proposition is is creating time for our dealers and a lot of that has to do with the location of our branches. So as the markets grow as we soak up the capacity that we have we.
Add new locations last year, we paused new locations early on in the season and you don't really want to open up you can't open up locations. During the season, because nobody has time for that so if you're not really set by the time the season opened the chances of deriving any benefit.
During the season are muted so when we tapped the brakes, we really took a pause and we went from eight to 10 debt, we would've normally add them down to two so basically going back on the on.
On the trail to open that takes us back to the eight to 10 and certainly.
And a very robust market as you can imagine.
The payback on the branches, which is really tied to revenue growth and gross profit.
Both in expense management, certainly that gets better the faster you growth.
Right no that makes sense.
My second question is on chemical price I'm, just wondering if you got any price realizations on the back half of the year and if you could provide any color on your expectations for chemical prices on 2021.
Yeah in the back half of the year because by the time. The you know the fire happened in <unk> and Tricolore for instance.
Which is let's call. It 20 to 25 per cent of our of our chemical sales isn't that isn't that product. So there was some price realization in the back half of the year, but not much because by the time the supplies were.
Drawn down there wasn't much.
Demand left for the season I think that in the 2021 season, we're gonna see inflation, particularly on that item.
That item alone could see could see price increases of 50%.
Maybe up to 75 per cent increase in that area for that price. The rest of the chemicals will go up I think our overall price guidance that we talked about for 2021 is when the 2% to 3% closer to the upper end.
And on the chemical side, it really runs the gamut.
Right right and then lastly, you had a great quarter.
'twenty and from Europe, and I'm, just wondering if you could provide an update on your growth plans in that region.
Yeah.
Europe is Europe is doing amazingly AR, they've just having another amazing year, they're off to a per off to a great start we have a we have a great team.
Our service in Europe is is terrific and we're being rewarded for that our supply chain has held up well I mean, where we are challenged like everybody else but.
I think we're doing better than most on the supply chain side.
And we like our we're very happy with the performance on the outlook for Europe.
Great Congrats on the great quarter.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Peter our van <unk> for closing remarks.
Yes. Thank you hey, listen thank you all for joining US we look forward to our discussion on April 22nd when we will see releasing the first quarter of 2021 results. Thank you.
The conference has now concluded. Thank you for attending to both presentation you may now disconnect.