Q4 2024 Pool Corp Earnings Call
Subtitling by SUBS Hamburg
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In the Investor Relations section, we have included a presentation on our Investor Relations website to summarize key points from our press release and call comment.
Speaker Change: You are being our president and CEO will begin our call today.
Speaker Change: Thank you Melanie and good morning, everyone.
This morning, we released our full year and fourth quarter 2024 results, reflecting sales slightly better than our earlier expectations and solid execution by our teams as construction and remodeling activities remained under pressure, we focused on providing an unmatched customer experience driving growth in our maintenance business, including double digit growth in our.
Speaker Change: Private label chemical sales and continued.
Speaker Change: Development and deployment of our pool of 360 ecosystem and tools, we believe that consumer spending on discretionary, especially that which requires financing continues to remain a headwind.
Speaker Change: While still preliminary we believe new pool construction will land at approximately 61000 units for 2024, which equates to a 15% decline in new units compared to last year.
Speaker Change: From the pandemic driven peak to the most recent data we have seen new pool construction declined by approximately 50% in units with declines also observed in renovation and remodel considering desk along with the general economic headwinds. We are pleased with our team's ability to gain share in a tough environment. We believe our share position has to.
Speaker Change: Driven by our best in class team solid execution unmatched value proposition and continued investment in a resilient industry.
Speaker Change: Now I would like to recap our full year and fourth quarter results for the full year, we delivered $5 3 billion in revenue down 4% from 2023 and slightly above our latest guidance driven by a tremendous team effort in creating an unmatched customer value proposition.
Speaker Change: Our gross margin finished the year at 29, 7%, reflecting weaker product mix as higher gross margin construction and remodel related products represented a smaller portion of our total revenues along with some competitive pressures and customer mix impacts, which Melanie will comment on in her remarks.
Speaker Change: <unk> generated operating income of $617 million operating margin of 11, 6% in line with our expanded Twenty-twenty operating margin and operating cash flow of $659 million.
We consider this a solid achievement, while continuing our strategic technology investments sales center network expansion and overcoming higher operating cost inflation over this period.
Speaker Change: We generated diluted EPS of $11 30, a share, including a 23 cents ASU tax benefit.
Speaker Change: For the fourth quarter total sales were $988 million down 2% compared to last year.
Speaker Change: Continuing the year over year sequential improvement we demonstrated throughout the year gross margins improved 10 bps to 29, 4% compared to the same period last year, and we generated operating income of $60 $7 million operating margin of six 1% and diluted EPS of <unk> 98 cents.
Speaker Change: Our share, including a one cent ASU tax benefit.
Speaker Change: Yeah.
Speaker Change: Breaking sales down by geography for the full year, Florida came in flat, while we saw mid single digit decline in the other year round markets, Florida showed resilience throughout the year and then the fourth quarter outperformed our other markets with 12% growth repair and replacement activity following hurricanes Helene and Milton provided some weather related benefit.
Speaker Change: Two Florida fourth quarter results, but the storm is likely delayed some construction and renovation activity.
Speaker Change: Our remaining year round markets saw a sales decline ranging from 3% to 7% in the quarter.
Speaker Change: To what we observed throughout the year maintenance related sales held up well, while construction related products saw pressure, particularly in Texas and California.
Speaker Change: For Horizon net sales declined 6% for the full year and 4% for the fourth quarter stronger commercial irrigation projects, along with major maintenance related sales offset softness in the residential construction activities.
Speaker Change: Bidder in PVC pipe deflation impacts volumes came in mostly flat for horizon for the fourth quarter, which we consider an encouraging an improving trend.
Speaker Change: For Europe sales declined 9% for the full year and 5% in the fourth quarter, we noted year over year sequential improvement during the 'twenty 'twenty four swimming pool season in Europe.
Speaker Change: Onto our product categories chemical sales increased 2% for the year and 8% in the fourth quarter as mentioned mid teens growth in our private label chemical sales supported our ability to grow overall chemicals greater than the increase in the installed base fourth quarter sales were lifted by post storm cleanup efforts in Florida.
Speaker Change: But continued to show growth across the overall business.
Speaker Change: The winter industry shows we also unveiled our new chemical branding and marketing plans, which will create even more demand for these best in class products. Complementing. This we introduced branded test strips that will work with our private label consumer App.
Speaker Change: Which is new for the 2025 season and will allow us to drive additional growth through our dealers for our proprietary products.
Speaker Change: Building material sales declined 10% for the full year and 8% in the fourth quarter, considering the estimated 15% decline in new pool units constructed. These results are strong indicators that.
Speaker Change: Our value proposition, our proprietary N P T branded pool and tile finishes our expansive outdoor living offering.
Speaker Change: The power of our model and the superior tools and expertise provide to our support to provide to our builders.
Speaker Change: Equipment sales, which exclude cleaners were flat for the year and up 6% in the fourth quarter as expected maintenance related equipment demand remained steady and the fourth quarter included heightened repair and replacement activity in Florida.
Speaker Change: I only during this critical recovery period, but also throughout the year our supply chain teams worked very closely with our vendors to improve inventory vitality and fill rates, while reducing days on hand.
Speaker Change: We've invested in people processes and technology that helped deliver a better customer experience and solidified the confidence that we will effectively deliver needed products when they are needed most.
Speaker Change: Turning to end markets, our commercial pool product sales continued to grow with 9% growth both for the full year and in the fourth quarter. We continued to invest in capabilities that allow us to take a larger share position and a very technical market.
Speaker Change: Our recent investments which include acquisitions inventory and talent expansion will allow us to continue delivering growth and commercial aquatics.
Speaker Change: Sales to our independent retail customers declined 4% in the for the full year, but were up 1% in the fourth quarter.
Speaker Change: Pitch of any retail sales, representing our franchisees sales to their end customers increased 4% for the year and 15% in the fourth quarter.
While the franchisees sales to end customers have been steady throughout 2024, most pinch stores are concentrated in Florida, where a significant amount of storm related repair and replacement activity occurred.
Speaker Change: In the fourth quarter.
Speaker Change: Orders through our B to B pool, $3 60 application increased 12 to 12, 5% in the fourth quarter compared to 11% at.
Speaker Change: At the same time last year as we introduce new and improved versions of our poultry 60 water tests and pull through 60 service tools, we consider this metric and private label chemical product sales to be the most meaningful indicators of success in the early adoption and ongoing utilization of these tools and applications also noteworthy.
Speaker Change: Our pool water chemistry test recommended over 1 million product applications to consumers through our dealers in 2024 or two balanced pool and spa water over the long term, we see pulled 360 service is a revolutionary opportunity to help our maintenance customers grow their business.
Speaker Change: Create efficiencies and productivity in their operations and in ours.
Speaker Change: We remain focused on tactically expanding our widespread and fully integrated sales center network in 'twenty 'twenty four we opened 10, new locations and added two more through acquisitions, bringing our total count to almost 450 sale centers.
Speaker Change: Our Pinchpenny franchise network added 11, new stores, including seven in Texas for a year end network total of 295 stores.
Speaker Change: With the growth of our Pinchpenny network, we have added additional capabilities and as of the end of 2024, our operating distribution points specific where continued franchise growth in both Dallas and Houston.
Speaker Change: Since if any will open our first store in the Arizona market in the coming weeks and has developed distribution capabilities to support this market and future expansion in the western Sunbelt.
Speaker Change: Now I'd like to frame up our view of the 2025 market and outlook. Our teams delivered solid results in 2020 for executing on our strategic initiatives to grow share in both our steady maintenance related business and to capture available new pool and remodel work in a weaker discretionary spending environment.
Speaker Change: While investing in our capabilities that further differentiate our customer experience.
Speaker Change: Our expectations for 2025 are no different under the present macroeconomic conditions.
Speaker Change: The current interest rate outlook is not likely to benefit our industry in the near term having said this our dealers continue to communicate inquiries on new pool construction and discretionary remodel projects are solid but when financing is involved we believe consumers tend to remain hesitant.
Speaker Change: As of 'twenty 'twenty, four we expect maintenance related product sales to be steady offering some growth potential from the 2024 increase in the installed base modest inflation and continued market share gains in.
Speaker Change: In the meantime, we remain aggressive in helping our customers grow their business and providing an unmatched customer experience.
Speaker Change: Breaking down our top line expectations, we expect total sales growth for 2025 to be relatively flat to up slightly.
Speaker Change: Components include benefits from inflation of 1% to 2%, it's a maintenance related product sales growth and continued market share expansion.
Speaker Change: Moving to the discretionary portions of our business currently we expect new pool construction in units to be relatively flat.
Speaker Change: While around 60000 units may be close to the bottom.
Speaker Change: The uncertain economic environment makes it unclear how quickly entry level financing dependent consumers will return to the market.
Speaker Change: Renovation and remodel activities should be stable in most markets over the past two years remodel projects have been lower in number and scope, indicating separation of projects for a pullback of more highly featured comprehensive project spending.
Speaker Change: Deferred remodels will likely be a growth opportunity as the economy improves, but we remain cautious at the present time.
Speaker Change: Taking these factors into consideration our 2024 guidance for diluted earnings per share is $11.08 to $11 58 per share, including an estimated <unk> ASU benefit.
Speaker Change: Melanie will go into more details on the remainder of our P&L assumptions and capital allocation plans in her prepared remarks.
Speaker Change: Looking out beyond that 2025, we're fortunate to operate in an industry that grows upon itself each year, new pools go into the ground, creating growing demand for the products, we sell to maintain and improve those pools everyday continuing to invest in expanding our sales and our footprint developing enhanced technological tools that dip.
Speaker Change: <unk>, our value proposition, creating productivity for us and our customers and introducing new products are instrumental in growing our business with.
Speaker Change: With our intense focus on serving the pool service professional pool builder and DIY markets through our incredible dealer base and the Pinchpenny franchise, we can continue to grow our share through all economic cycles.
Speaker Change: Additionally, the long term factors that position outdoor living as a growing industry continued to thrive.
Speaker Change: Gration, the growing millennial and emerging Gen Z home buying population, a housing shortage and technological advancements and support a favorable long term growth outlook as I reflect on how we have emerged from our significant growth cycle post pandemic I see a company that has strategically expanded its footprint grown its revenue base by two bills.
Speaker Change: <unk>.
Speaker Change: Increased margins accelerated the growth of our franchise network acquired and increase the utilization of a vertically integrated chemical repackaging plant and developed technological tools to help both service and retail customers grow and enhance their productivity.
Speaker Change: Our widespread distribution network combined with our four central shipping locations throughout the U S and fully integrated ERP system differentiate us and allow us to efficiently provide our customers with the products they need when they need them along with unmatched expertise to help them grow their business.
Speaker Change: We are larger and more strategically positioned and integrated than anyone else in the industry.
Speaker Change: As I wrap up.
I want to especially thank the pool Corp team their ability to adapt to their dynamic environment focused on what they can control.
Speaker Change: And propel our growth forward.
Speaker Change: It gives me great Pride I also want to thank our vendors are.
Speaker Change: Our commitment to them and the industry is unmatched and we truly value the partnerships.
Speaker Change: Lastly, I want to thank our customers for helping homeowners reaped the benefits of outdoor living.
Speaker Change: And I will now turn the call over to Melanie Hart, Our senior Vice President and Chief Financial Officer for her prepared remarks. Thank you Pete I'll start with a quick recap of our fourth quarter results highlight our 2024 accomplishments and then discuss our plans for 2025 based on today's environment.
Speaker Change: Sales, reflecting a 2% year over year decrease for the fourth quarter continued to show an improving trend from the beginning of a year, where we were down 7% in first quarter, 5% in second and 3% in the third quarter fourth quarter included an additional selling day, which fell into December therefore, having little impact on the overall.
Speaker Change: <unk> results for the quarter.
He commented on the outperformance we saw in Florida, primarily weather, driven which had an approximately 1% benefit in quarterly sales.
Speaker Change: Similar to the second and third quarter, we estimate a net 1% inflation benefit positive realized pricing was offset by lower selling prices for chemicals and commodities over the same quarter last year.
Speaker Change: Sales continued to be impacted by the lower levels of new pool, construction and repair and remodel activity, which contributed to an estimated 5% comparative decrease in sales mitigated by positive volume and maintenance products.
Speaker Change: Gross margin of 29, 4% less concern is that with prior year fourth quarter up 29, 3% product mix related to lower sales of building materials continue to dilute margin similar to what we have seen throughout the year and were balanced by year over year improvement from pricing and supply chain accent.
Speaker Change: Fourth quarter operating expenses increased by $15 million or 7% over last year.
Speaker Change: Coding certain timing shifts of costs from the third quarter of 2024, the 10, new sales centers have been during the year and our incremental technology investment.
Speaker Change: Operating income of 61 million compares to prior year operating income of 79 million.
Speaker Change: Operating margin was six 1% in the quarter compared to seven 9% in the prior year.
Speaker Change: Diluted earnings per share for the fourth quarter with 98 <unk>.
Speaker Change: Compared to a $1 32 in the fourth quarter of 2023.
Speaker Change: We are pleased with the outcome of our full year 2024 results and the way that we have managed the business in a year with continued macroeconomic pressures and lower levels of consumer discretionary spending.
Speaker Change: We maintained our significantly stepped up 2020 operating margin compared to historical result, even with sales contracting and our commitment to expanding our footprint and technology services to our customer.
Speaker Change: This was accomplished by continuing to make the right choices.
Speaker Change: Based on the long term growth and profitability at the company.
Speaker Change: Solid earnings combined with excellent working capital management, including a $76 million reduction in inventory propelled our operating cash flow generation to almost 660 million are.
Speaker Change: Our capital allocation for the year included 10, Greenfield South center and to acquire South Center.
Speaker Change: 11, near Pinchpenny franchisee stores increased capabilities in our pillar 360 ecosystem.
Speaker Change: $3 million reduction in debt outstanding and $483 million returned to shareholders through dividends and share repurchases.
Speaker Change: Net sales of $5 3 billion continues to represent our leadership position in the outdoor living space.
Speaker Change: Or is that sales decrease was primarily driven by the approximately 15% decrease in Nepal construction unit and every 10% estimated decrease in full renovation and remodel spend collectively these impacted topline sales by around 5%.
Speaker Change: Maintenance held up very well overall with volume improvement ahead of the growth in the installed base of pools, and realizing about 2% pricing from pass through a vendor product cost increases.
Speaker Change: Chemical and commodity pricing has offset the positive pricing impact by 1% for an overall, 1% net pricing benefit.
Speaker Change: Unfavorable weather during the first part of the year has been offset in the fourth quarter right overall impact of less than 1% for the full year.
Speaker Change: <unk> sales at Horizon in Europe resulted in an additional 1% decrease.
Speaker Change: We estimate that our 2024 core product sales were around 64% and maintenance items, 22% used for renovation and remodel and 14% for new pool construction projects. This compares to 2023 for the breakout was closer to 62% maintenance products, 24% renovation of AMR.
Speaker Change: Model and 14% for Newbuild construction.
Speaker Change: Our sales for product, we track for use in Newport construction and remodel so less of a decrease in the overall market as our building materials product finished the year down, 10%, even including negative impacts the pricing.
We continue to believe that our long term gross margin target of approximately 30% is achievable in a normalized industry growth environment, and we would expect that to vary seasonally we achieved a gross margin of 29, 7% for 2024 compared to the 30% realized in the prior year.
Speaker Change: In 2024 product mix, mostly related to lower levels of new construction and customer mix, where our larger customers fared better overall than our smaller customers negatively impacted gross margin.
Speaker Change: These fluctuations were offset by positive contribution realized from the reversal of previously recorded import taxes pricing benefit increased private label chemical sales and a return to normal for purchase related volume incentives.
Speaker Change: Specific to product mix changes are building materials as a percentage of sales represented 12% of sales in 2024 compared to 13% in 2023.
Speaker Change: Our operating margin at 11, 6% was consistent with our 2020 operating margin of 11, 8%. This includes the incremental investment in technology or 18 basis points impact to 2024.
Speaker Change: The comparison here is important and that we have maintained profitability. After a period of sales contraction, while managing through a much higher level of cost inflation.
Speaker Change: Our operating expenses increased 5% or 45 million to $958 million.
Speaker Change: Included in the increase was approximately $32 million of future growth levers comprised of the $20 million related to technology and 12 million for the addition of 10, New Greenfield Town Center.
The remaining $12 million or around one 5% increase represents significantly capacity creation efforts, where we were able to control volume related expenses.
Speaker Change: Utilize that footprint gain operating efficiencies and control the increase in total operating expenses to a much lower rate than the inflationary cost impacts to the business.
Speaker Change: We had a actually a benefit of $8 8 million or <unk> 23 cents per diluted share for the full year of which one that was added in the fourth quarter. Excluding ASU I follow your tax rate was 25%.
Speaker Change: We finished the year with earnings per share of $11 30 for 2024, which.
Speaker Change: Which was 15% lower than prior year reported EPS of $13 and 35 that.
Speaker Change: Excluding the ASU benefit our EPS of $11 seven a decrease of 16% compared to $13 an 18th at.
Speaker Change: Coming off of a record cash flow from operating activities of $888 million in 2023, we achieved 2020 for cash flows of 152% of net income.
Speaker Change: We reduced inventory and larger percentage than the sales decrease even while providing stock for our 10 new locations.
Speaker Change: Cash flow in 2024 included $68 5 million of deferred tax payment for those impacted by Hurricane Francine, which will be paid in the first quarter of 2025 and lower the cash flow for that period.
Speaker Change: Even without the tax planning benefit cash flow from operations exceeded net income by 36% next.
Speaker Change: Next I'll recap key areas on our balance sheet.
Speaker Change: Days sales outstanding of $26 three days was favorable when compared to 2023 DSO of $26 eight days year end accounts receivable of $315 million compared favorably by $28 million or 8% from prior year.
Speaker Change: Our inventory balance of $1 3 billion with $76 million less than the prior year balance of $1 4 billion.
Speaker Change: The 6% reduction exceeded sales changes as our efforts related to supply chain initiatives continue to add value.
Speaker Change: Days in inventory was 129, a decrease of six days from prior year.
Speaker Change: Total debt outstanding was reduced by $103 million from one point of the 5 billion to $950 million. The debt reduction was funded by operating cash flows and was achieved even with over $59 million of capital purchases for new and existing locations funding of our technology initiatives.
Speaker Change: And a 9% increase in our quarterly dividend and $304 million in share repurchases. We finished the year with a leverage ratio of one four slightly below our target leverage range of one five to two times.
Speaker Change: We completed a total share repurchases of $304 million, including $144 million in the fourth quarter contributing to a 2% reduction in weighted average shares outstanding compared to 2023 year and the total amount returned to shareholders for the full year, including dividends and share repurchases with $483 million.
Speaker Change: It only to 2022 despite.
Speaker Change: Despite a challenged business environment and pressured earnings we've returned almost $1 billion to shareholders through dividends and share repurchases in the past two years.
Speaker Change: Turning to our outlook for 2025.
Speaker Change: At this time, we are not anticipating a quick recovery in sales trends from a macroeconomic standpoint, we are entering 2025 with higher than historical interest rate possibilities of increased costs and continued inflation impacts.
Clear path for consumers to return to more normalized levels of discretionary spending in the pool and irrigation space.
Speaker Change: As proven in 2024 are steady maintenance business will continue to benefit from new Poles added during the prior year, even without a meaningful improvement in new construction and repair and remodel activity pricing based on pool season updates from vendors across our product portfolio.
Speaker Change: Is expected to have a blended one to two per cent benefit with some continued drag in first quarter for chemicals and commodity our sales outlook range for 2025, it's flat to a low single digit increase.
Speaker Change: As we do not have a significant amount of direct import we do not anticipate that the currently enacted additional tariffs from China will have a material impact on sales for 2025.
Speaker Change: The vast majority of our products are purchased domestically. However may include some portion of goods that could see cost increases if further tariff for Mexico, or Canada, where it can be passed we will include any estimated impact of future tariffs in our guidance when we receive cost increases from our vendors and can reasonably estimate the potential effects.
Speaker Change: As we have historically, we would expect to pass these cost increases through as additional selling price.
Speaker Change: Our gross margin for 2025 is expected to be within the range of our 2020 for gross margin and our long term guidance target of 30%.
Speaker Change: The comparative basis in 2025 contributions from our success in supply chain management pricing and increased private label sales are expected to offset the positive import tax included in 2024.
Speaker Change: Based on trends as we exited the year, we are not anticipating a significant increase in Newport construction and remodel activity. That's product mix is not expected to have a significant positive benefit to 2025 gross Martin.
Speaker Change: On the expense side, we continue to see higher than normal growth in wages rent and other operating costs at the management team will continue to focus on to offset these cost increases with improved productivity.
Speaker Change: The stepped up level of focused investment in technology will continue in 2025 at a similar level as 2024 and is considered a core part of our customer value creation effort.
Speaker Change: We expect the incremental $10 million of costs associated with new sales center expansion in 2025 and <unk>.
Speaker Change: Continued to add to our distribution network.
Speaker Change: As we start to see market recovery in topline growth, we expect some incremental incentive based compensation were at low single digit topline would result in around $15 million of incremental compensation expense.
Speaker Change: We expect that interest expense will range from $40 million to $35 million based on current rates and excluding any share repurchases interest expense is typically higher in quarters, one and two as we built inventory to support the funding pool season.
Speaker Change: The improvement from 'twenty 'twenty four is primarily driven by lower expected average debt levels estimated at current interest rates. We have included around $50 million to $55 million prior depreciation and amortization estimate.
Speaker Change: Capital allocation plans include the use of cash of around one to one 5% of net sales on capital reinvestments into the business, including New sales center openings.
Speaker Change: We plan for between 25 to 50 million on acquisitions once approved our dividends, we utilized cash of around $200 million as we would expect to continue to repurchase shares opportunistically.
Speaker Change: Cash flow in 2025 is expected to be between 90, and 100% of net income and will be impacted by the 68 and a half million deferred tax payment made in the first quarter 2025 related to 2024.
Speaker Change: Our annual tax rate is estimated to be approximately 25%. Excluding ASU. This rate typically runs closer to 25 and a half during quarters, one two and four and lower in Q3, we are projecting an eight cent benefit from an issue in the first quarter for the expected impact of restricted share vesting and stock options expire.
Speaker Change: In 2025.
Speaker Change: We expect approximately 38 million weighted average shares outstanding that will be applied to net income attributable to common shareholders at the end of the first quarter and $38 1 million shares for the remaining quarters before consideration of any additional share buybacks.
Speaker Change: I got it for 2025 is that day later EPS range of $11 eight to $11 58 <unk>.
Speaker Change: Including an estimated eight ASU tax benefit.
From an operational standpoint, excluding the benefit of the $12 $6 million import tax on the 2024 result, the improved earnings at the midpoint would be around 4%.
Speaker Change: First quarter 2025 will include one less selling day than prior year for a total of one less selling day for full year 2025 compared to 2024.
Speaker Change: From a seasonality standpoint with Easter falling later in the year, there's typically would ship pool openings from first quarter to second quarter in some markets.
Speaker Change: Last year first quarter included the $12 $6 million of benefit to gross margin related to import taxes. This will provide a negative comparison for 2025, and we would expect a normal seasonal gross margin for Q1.
Speaker Change: As we look forward to the 2025 season, our team is prepared to capitalize on the stable maintenance portion of our business continue to capture incremental market share and adjust the business and economic changes that will position.
Speaker Change: Outperformed the market with new construction and remodel activity returned to more normalized historical level, we will be ready as we have made the investments necessary to continue to grow faster than the overall market.
Speaker Change: I appreciate all of you participating in today's call. We will now open the line for questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two we ask that you. Please limit yourself to one question and one follow up and if you have further questions. You may reenter the question queue and at this time, we'll pause momentarily to assemble our roster.
Speaker Change: And the first question will come from Susan Mcclary with Goldman Sachs. Please go ahead.
Susan Mcclary: Thank you good morning, everyone.
Speaker Change: Good morning, Susan.
Speaker Change: Good morning, I wanted to talk a bit about the pool of 360 initiatives and some of the momentum you're seeing there can you talk about how that will contribute to your outlook for sales to be flat to approximately up this year and then I think Melanie mentioned in her comments that you expect to spend on those investments about flat year over year, but anything notable within that.
Speaker Change: That that we should be aware of in terms of some of the key initiatives and how they're coming through.
Speaker Change: Yeah, we're very pleased with the with the traction that we're seeing on <unk> 360, and remember the ecosystem has many parts.
Speaker Change: So in our comments, we mentioned that at this point were we are considering new construction to be kind of flattish don't really it's very early to tell.
Speaker Change: New construction will end up but right now we're assuming flattish so.
Speaker Change: We leaned into the maintenance portion of our business and the maintenance portion of our business.
Speaker Change: It is our private label chemicals play a large role in that so.
Speaker Change: As we mentioned one of them one of the measures of.
Speaker Change: The effectiveness of <unk> 360 is what's happening to our private label chemical sales and you can see that they have increased quite a bit.
Speaker Change: So what we think is that the tools prescribe our proprietary chemicals.
Speaker Change: That regardless of the construction and remodel and renovation environment. We think that's going to continue to pay dividends now that's a function of of the number of pools in the ground and largely whether it will determine the length of the swimming pool season. So what we think is that it provides a very effective way for the <unk>.
Speaker Change: Consumers, either with our new app or using the full 360 water test at our dealer stores using the using the proprietary software that we have at the stores.
Speaker Change: Or the new pool through 60 service, which we think will drive efficiency of the.
Speaker Change: The maintenance companies that are running the software, which allows them to run their business. So overall, we think it makes them more efficient we think it makes them stickier to us in terms of customer base and we think it drives sales of the proprietary products because it only recommends our products not anybody else's.
Speaker Change: Okay. That's great color. Thank you and then maybe shifting to Pinchpenny you know given the macro backdrop and in all the pressures that the consumer continues to be under are you seeing that there is growth on the DIY side of the business at all or any shift in that and what that means for pinch a penny.
Speaker Change: Their ability to gain share and the implications for the margins as a result of that.
Speaker Change: Yeah.
Maybe kind of ironically, there hasnt been a big shift of people turning away from professional service companies to DIY every year, a certain amount of customers will flip flop back and forth. Some people say well I can do this and then they try and take it over themselves if they do it with.
Speaker Change: Uninformed about how to do it and they don't use the like some of the apps that we have it can be problematic. So overall I would say not a lot of shifting.
Speaker Change: Shifting back and forth between do it for me and DIY.
Speaker Change: <unk> proposition that any retail store has is providing a great customer experience.
Speaker Change: <unk> provides a great customer experience there are owner operated just like our independent stores, which tend to provide the best the best overall customer experience. So they make it easy for the customers to shop their effectively located in the right area, where the swimming pools are.
Speaker Change: They are fully stocked they have the software and technology, which ensures that the consumer should have the most trouble free pool.
Speaker Change: But overall the growth in Pinchpenny and.
Speaker Change: A well run independent retail store has to do with the overall customer experience that they provide.
Speaker Change: Okay. That's helpful. Thank you good luck with everything.
Speaker Change: Thank you.
The next question will come from Ryan Merkel with William Blair. Please go ahead.
Ryan Merkel: Hey, good morning, Thanks for the questions and congrats on the strong finish to the year I had a couple of questions on guidance. So I think Pete I was little surprised to see the outlook for new construction units flattish.
Ryan Merkel: And we've got the high interest rate environment, and I believe the pool permits are still down a good bit. So just talk about why you think flattish is the right out outlook and then is it more second half weighted should should it still be down in the first half.
Speaker Change: Yeah, I think I think that's right Ryan our dealers that we've spoken to earlier in the year you know its show season, and so we interact with a lot of dealers in the first eight weeks of the year.
Speaker Change: And what I would tell you is that they are reporting activities. Our activity is good now certainly in the northeast, which is a very small portion of the market. This time of year.
Speaker Change: They got winter now last year their winter came.
Speaker Change: Later in the first quarter and was pretty good in the beginning of the quarter. This year.
Speaker Change: It's cold and Snowy everywhere I mean, how do we get snow in Louisiana.
Speaker Change: No.
Speaker Change: I think youre right the sentiment that we're getting from the dealers is that they think that it's not going to get any worse, but I do think youre right. It feels to me like the general sense of the economy is that is probably going to be better in the second half than in the first half.
Speaker Change: Okay got it.
Speaker Change: And then on gross margin that was also a surprise for me you're guiding it flat to up and just talk about how you're achieving that because I think product mix will be a negative and then you've got the accounting headwind. So so what are the offsets to that.
Speaker Change: To those items.
Speaker Change: Yeah, I mean, the offsets as expected I think accident that we're working on.
Speaker Change: We have several things on the supply chain side that we continue to develop and put in place in 2024 that we see some future benefits coming into in 2025.
Speaker Change: And then as Pete mentioned, we rolled out several new categories of private label products and so that we did that at both our sales conference internally.
Speaker Change: As well as the trade shows that we've been attending them early in the year and so it's going to be focused on really kind of supply chain, it's going to be increase in private label.
Speaker Change: And then the continued effort that we're making on the pricing side as well.
Speaker Change: Got it alright, I'll pass it on thanks.
Speaker Change: Thank you.
Speaker Change: The next question will come from Scott Schneeberger with Oppenheimer. Please go ahead.
Thanks, very much could you primarily for you go back over the competitive pressures that you touched upon and also customer mix and how youre thinking about both of those entering the year and over the course of the year. Thanks.
Speaker Change: Yeah, so as we've seen kind of throughout the year and really kind of starting in 2021.
Speaker Change: The the growth in the swimming pool industry, we have seen on private equity kind of entered the market in.
Speaker Change: What kind of across the different avenues into the into the industry overall.
Speaker Change: And so one of the things that we've seen is some growth in our national accounts, where we have seen some consolidations, there and and so what we've seen there is that as customers are able to capture a larger share of the market overall, because they have better reputations within their individual markets.
Speaker Change: And so that's really allowed us to focus from a national standpoint on serving those customers and one of the avenues that we see a further improvement in our market share because we are better able to serve those customers.
Peter: Thanks, very much Peter for you.
Speaker Change: Specifically on.
Peter: Remodel.
Peter: What are you what are you hearing as far as what's your what your customers are saying about the homeowner what are whats implied in is your assumption for for interest rates and how you thought about the guidance for that and just anecdotally what you're hearing there what you think the behavior will be from the.
Peter: From the homeowners this year, given where we are in the housing market. Thanks.
Peter: Sure.
Peter: I would tell you you really you have to you have to.
Peter: Bifurcate the market so to speak when it comes to renovation and remodel because it really depends on the customer type.
Peter: Do you have a cash customer than the pool is ready to remodel.
Peter: And they.
Peter: Go out and engage a contractor and they make it happen ones that have a significant portion of financing because remember we talked about remodels on previous calls you know that.
Peter: Remodels have also come up in price quite a bit too so when new equipment pad could be.
Peter: $14 $15000.
Peter: A pool finish could be knight for a small pool $910000 tile couple of thousand dollars in decking. It really depends on the size of the decking. So many remodel projects.
Peter: Could get pretty large and when that happens.
Peter: More and more consumers, we will seek to finance part of that.
Peter: So in the current interest rate environment, but for somebody that has to do a remodel because repairs arent getting it done anymore meeting the finishes beyond its useful life and Thats, where somebody will say, okay. I may not want to do it by half to do it because the to preserve the asset so to speak.
Peter: So I think that cash buyers that market is okay was okay is okay similar to the to the to the.
Peter: Cash buyer for new pool construction.
Peter: What I will say and I mentioned in my comments as I believe that once interest rates come down.
Peter: We would expect to see renovation and remodel will be a source of growth for our dealer base because I believe that.
Peter: In the last couple of years with elevated rates people that probably should have remodeled have delayed that and remember we consider renovation and remodel to be semi discretionary, meaning I should do it but I don't really have to do it this year, perhaps I can forestall it for a year or two but eventually it will have to get done so I think that as we move forward.
Peter: Given the installed base continues to age every year, regardless of interest rates I think this will be an area that that we lean into for growth.
Peter: Great. Thanks best of luck.
David Manthey: The next question will come from David Manthey with Baird. Please go ahead.
David Manthey: Thank you and good morning all.
Speaker Change: First question is on the weather how are you thinking about the weather in 2024 as a comp for 2025 overall because precipitation throughout the season was pretty normal but the temperatures in April may and June.
Speaker Change: Pretty much record mild levels.
Speaker Change: I understand there wasn't a capacity situation for new construction R&R in 'twenty four but wouldnt.
Speaker Change: Good weather season will be generally a positive for both the green in all three areas of the blue business all else equal.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: So a little bit tougher comp in 'twenty five but that's.
Speaker Change: That's incorporated into your guidance.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: You know <unk> been covering us for a long time, whether is in this business, especially early in the year is.
Speaker Change: Has some pretty wild swings once we get into the season generally its pretty normal weather effects is much more on the shoulders of the year.
Speaker Change: Yes.
Speaker Change: Got it.
Speaker Change: Okay, and then maybe you could recalibrate us on your strategic thoughts around horizon.
Speaker Change: I mean looking out five to 10 years, what is the green business looked like are you just looking to get deeper in the Sun belt are you looking to expand.
Speaker Change: Nationally or and then secondarily, where does horizon fit in the range of capital allocation priorities that you have as a company.
Speaker Change: Great question. So horizon is a horizon is a business that is much more heavily dependent on new construction, new home construction, specifically than the rest of our business.
Speaker Change: So we all know that new home construction has been under built for many years and that there is a housing shortage.
Speaker Change: I think from a from a cyclical perspective horizon is in a spot right now that.
Speaker Change: There is a net need for new homes.
Speaker Change: I think the interest rate housing market overall has that has that locked up a bit.
Speaker Change: But given that the population continues to grow and I believe that the long term outlook on rates is they will come down and the housing market should unlock I think that business will that.
Speaker Change: That business will thrive in that type of environment.
Speaker Change: <unk>, we're in today frankly, because as I mentioned in my comments, the commercial business and horizon is is in better shape.
Speaker Change: Then then residential so from a capital allocation perspective, we're not opening.
Speaker Change: A ton of branches, we are protecting our competitive position in markets, where we need to expand and or we may need some capacity, but we remained focused largely on the sunbelt I don't really want to have at this point.
Speaker Change: Our business outside of the Sunbelt for horizon. It doesn't take a lot of capital to run that business and given that our footprint our competitive footprint in most of the key markets is pretty good.
Speaker Change: We don't need to put a bunch of capital into new locations now if the market.
Speaker Change: New home construction market.
Speaker Change: It takes often in the future years, then yes, we may add to the footprint, but largely I don't see that new home construction market, taking off outside of the Sunbelt I think the best chances to see a growth in that would be in Sunbelt, then we would follow.
Speaker Change: Thanks, Pete Good luck.
Speaker Change: Thank you.
Speaker Change: The next question will come from Andrew Carter with Stifel. Please go ahead.
Speaker Change: Hey, Thank you. Good morning, just first wanted to ask about kind of the commodity pressure. He did say just to be clear you lumped in chemicals, plus TVE, but any building materials can you kind of level set where you've taken step downs in terms of the chemical pricing have you seen anything incremental obviously, theres, obviously bothers Srs out there under <unk>.
Speaker Change: Depots ownership right now Leslie is actually is talking about getting more sharp on price points. So just kind of level set where we are and what's kind of considered in the guidance right now.
Speaker Change: Yes, so right now in the guidance and we do expect to see some continued pressure on those chemicals and PVC and to a lesser extent the building materials. So I do think that building materials. They have worked its way out primarily through 2024.
Speaker Change: On the chemical side, we exited our selling pricing in first quarter or so.
Speaker Change: Little bit less than where they were at the end of 2024.
Speaker Change: But comparatively different from where they were first quarters that we're definitely going to have that impact in first quarter year over year.
Speaker Change: As is typical in first quarter, we do see from a competitive standpoint.
Speaker Change: <unk> is out in the market a.
Speaker Change: Lower selling prices to try to generate cash.
Speaker Change: For those that need to turn inventory into cash and to get people to come in the door in first quarter.
Speaker Change: It's not much different that we're seeing this year first quarter than we saw last year and really by the time the season hit that kind of normalized because people weren't leading with pricing on those chemicals anymore. So that would be kind of a similar assumption to what we would look for for for the rest of 'twenty five as it relates to that.
Speaker Change: See piping.
Speaker Change: That one is continued under pressure it was down year over year, 20% to 25% for the full year still downtown not a significant part of our business overall, but.
Speaker Change: We're not seeing any recovery in that at this point, so there could be slight slight impact on deflation for the rest of the year.
Speaker Change: Second question.
Speaker Change: Talking about like the flat new.
Speaker Change: Structure for the whole year and I think you said at a certain point that's predicated on pressure on the entry level is not coming back I guess Theres. A second there is a positive to that which is the increased content content rich feature rich that mixed tailwind you are building materials were down 11% last year, new construction down 15.
Speaker Change: Do you see that providing kind of a healthy benefit is that in your guide is that upside to the guide and continue that and have you seen any of that go back I E. Like any of the pools that are being built by the higher and are there any sacrifices orders just as okay. If I had the money to build a poll on a build a poll and I'm going to bill what I want.
Speaker Change: Yes, I think Thats generally right Andrew.
Speaker Change: If you have the money to build a pool you want a pool, you're more than likely to put into the available technology today youre not going to try.
Ryan Merkel: Ryan go back too.
Ryan Merkel: An older platform and quite frankly, most of the builders wouldn't do that anyway, so as far as the overall price of the pool I think it's being skewed by a couple of things one is content and two is just the type of pools that are being built.
I think we're seeing more and more.
Continuation I should say continuation of the number of pools being built on average being.
Ryan Merkel: The larger more feature laden pools than entry level I think there is healthy demand for entry level, we expect it to turn at some point and quite frankly, Thats why we are continuing to invest in our business because we realize it's a cycle and we don't want to be when the cycle turns we continue to gain share and win this.
Ryan Merkel: <unk> turns then essentially that's when we're going to get paid back for these investments in new locations.
Ryan Merkel: And.
Ryan Merkel: Other investments that we've made in our customer experience.
Speaker Change: Thanks, I'll pass it on.
Ryan Merkel: Thank you.
Ryan Merkel: The next question will come from Trey Grooms with Stephens. Please go ahead.
Ryan Merkel: Okay.
Speaker Change: Good morning, everyone.
Ryan Merkel: Yeah.
Ryan Merkel: So just real quick money on.
Speaker Change: On the operating expenses you went through several puts and takes around that and clearly there's several moving pieces. This year could you talk about maybe the timing of some of these factors or maybe how we should think about.
Ryan Merkel: The cadence of.
Ryan Merkel: Operating expense as we move through the year and sorry, if I missed.
Ryan Merkel: Any details on that it broke out for just for my call.
Ryan Merkel: Disconnected for just a second.
Ryan Merkel: Yeah No I appreciate the question. So the two areas that we are investing in specifically for 2025.
Ryan Merkel: One is going to be the addition of a similar number of new sale centers.
Ryan Merkel: That we expect to spend about $10 million.
So we will see the majority of that come through kind of before season.
Ryan Merkel: We are fair.
Ryan Merkel: Fairly far along in and opening up a little over half of that.
And you know before seasons before April may so, you'll see that kind of heavily weighted to first quarter second quarter.
Ryan Merkel: And then the rest of it will fall into the fourth quarter. We typically don't open up anything kind of in the middle of that so that's how I would split those expenses.
And then on the incentive comp side that we actually record in proportion to our operating income when we earn it.
Ryan Merkel: So it would have a similar seasonal spread to our overall operating income.
Speaker Change: Got it.
Ryan Merkel: Okay.
Ryan Merkel: And then maybe.
Ryan Merkel: I guess this could also kind of.
Ryan Merkel: It's up to the similar question on timing, but you had mentioned.
Ryan Merkel: Some rebuild demand in Florida from Hurricanes.
Ryan Merkel: We expect to have those come through yet or how are you thinking about the timing there and then also.
Ryan Merkel: With back half.
Ryan Merkel: Expectation for.
Ryan Merkel: It may be a leveling or maybe even a little improvement in the new side.
Ryan Merkel: R&R.
Ryan Merkel: Should should that impact the normal seasonality that we typically see.
Ryan Merkel: Yeah related to Florida, but I would say is there's still areas in Florida that need a significant amount of work that we're still there.
Ryan Merkel: The homes are rebuilt and theyre not going to rebuild the pools right. So any place where the homeless still habitable then those pools were as quickly as possible put back online. So that people can use them, there's still a fair amount of pools at homes in Florida, which are uninhabitable and those pools will be.
Ryan Merkel: Future work for us once the homes get.
Ryan Merkel: Get fixed or rebuilt theirs.
Ryan Merkel: A lot of a lot of those homes.
Ryan Merkel: They're going to have to be raised and rebuilt versus just repair given the elevations of windows homes originally built so.
Ryan Merkel: That for US is just going to continue to be future work right it'll grow as people continue to move to Florida.
Ryan Merkel: <unk>.
Ryan Merkel: Homes that were damaged get rebuilt.
Ryan Merkel: As far as your question on the second half versus first half of the year I would say that.
Ryan Merkel: Certainly I believe the second half.
Our current our current thinking is is that the first half new construction.
Ryan Merkel: We say overall flattish.
Ryan Merkel: I think that the first half is going to be weaker than the second half, we're anticipating that the second half will be a little bit stronger.
Ryan Merkel: It's very early in the season very tough very tough to predict right now given the amount of uncertainty that there still is in the economy, but based on the level of optimism that we sense with the dealers. That's currently what we are thinking when I when I consider our first half or first quarter of the year.
Ryan Merkel: And I look at the weather the weather patterns.
Ryan Merkel: As I said last year, whether in the beginning of the quarter or beginning of the year was actually very good.
Ryan Merkel: For the first quarter and then the end of the first quarter winter came in stuck around for a few weeks into the beginning of the second quarter. We don't know where were going to end this year as far as first quarter weather, but it looks like we're getting a real winter up north, but fortunately for US. This is not the most seasonally significant time of year.
Ryan Merkel: Yes.
Speaker Change: Right, Okay got it thanks I'll pass it on good luck.
Speaker Change: Thanks. The next question will come from Garik <unk> with loop capital markets. Please go ahead.
Garik: Alright, thank you.
Speaker Change: $45 million to $50 million, you're budgeting for M&A I was wondering if you could talk to some of the opportunities that youre looking at.
Speaker Change: Yeah, I think at this point, it's really in the same same area that we continue to invest and I think there's some opportunity for continued consolidation, albeit not nearly as much as there was say five or six years ago. So.
Speaker Change: We have an M&A M&A deck that we continue to work and have conversations with people, but I wouldn't expect at this point anything.
Speaker Change: Anything out of the ordinary.
Speaker Change: Okay, and then I was hoping just due to labor availability on the new construction side.
Speaker Change: We.
Speaker Change: How do you see growth or whether it's in the second half of this year maybe in 2026, what are you hearing from contractors getting D. I b.
Speaker Change: Administrations new policies.
Speaker Change: On immigration and if there's any any initial view on.
Speaker Change: Ability in being able to to get to future growth.
Speaker Change: Yeah. That's a question we've gotten a few times and I would tell you that I think in general things are okay. Because if you look at what the administration is targeting theyre targeting the more recent migrants if you will but if I go back to before this started the elevated migration of people that they are trying to reverse now I mean, we.
Speaker Change: Built a 120000 pools in new home construction was stronger then so there was plenty of people back four or five years ago to build more pools and build more homes and my assumption is that those folks are still here and are not the target of of any of the administration policy. So.
Speaker Change: By and large we're not hearing from any of our builders that.
Speaker Change: Their labor pool has changed significantly.
Speaker Change: Very good thanks for the call so I'll pass it on.
Speaker Change: Thanks.
Speaker Change: Yeah.
Speaker Change: Our last question for today will come from Sam Reed with Wells Fargo. Please go ahead.
Sam Reed: Awesome. Thanks, so much Peter I really appreciate all the high level color you gave on your outlook beyond 2025.
Sam Reed: Can we drill down in terms of what needs to happen for you to get back to your algorithm, especially kind of that 69% level on the topline I guess, what I'm getting at is in 6% to 9% achievable absent lower rates or if not what they would be.
Sam Reed: Rate environment persist in perpetuity here.
Sam Reed: 2025 via a good approximation in terms of how the business will trend.
Sam Reed: Thanks for the question I would tell you that.
Sam Reed: In order for us to get back to the long term growth algorithm, 6% to 9% then we need the housing market to loosen up and we need.
Sam Reed: Rates to rates to come down.
Sam Reed: If rates don't move.
Sam Reed: And People's access to capital.
Sam Reed: [noise] form their home equity <unk>.
Sam Reed: Mains very expensive.
Sam Reed: <unk>.
Sam Reed: If you if you call that the new normal I guess I'd have to view that in a couple of different stages. If its normal now and then you have and it stays flat for several years, where it becomes not as much of a shock of Wow. This is really expensive and therefore it is the new normal that I think I would have to.
Sam Reed: Fall back on well, how desirable as the product that we sell meaning new pools are pools, something that are going to go out of favor or it's a matter of affordability. So if rates stay elevated and ways to just continue to go up as time goes on if rates don't move that eventually we would get back to the growth algorithm because I think.
Sam Reed: Maybe naturally the housing market would open up I believe that.
Sam Reed: Rates will come down.
Sam Reed: And that should stimulate some growth and as I said I think there is some pent up demand on renovation and remodel and and I believe that the product that we are involved with which is the outdoor living and swimming pools are still in high demand and I would expect as rates come down for it to move but certainly in the short term.
Sam Reed: It'll be very hard to get back to the 6% to 9% growth if new pool construction stays flat at 60000 units.
Melanie Hart: No. That's helpful. I appreciate it and then Melanie quick one for you.
Sam Reed: Talk through several new private label categories.
Speaker Change: But you are getting into I know youre already really strong on the private label Kim side could you just dig deeper into what you're doing beyond that whats the mix of Cogs those new private label products are going to account for.
Speaker Change: And then maybe isolate any gross margin benefits in 'twenty five.
Speaker Change: Yes, our main focus continues to really be initially for 2025 on the on the maintenance side of the business. So the various products that we're adding to that portfolio.
Speaker Change: I'll cover the maintenance side and from an overall benefit.
Speaker Change: We are expecting you know kind of back to Ryan's question. There is an offset from some of that positive benefit that we got in 2024 related to the import taxes that wont be recurring.
For the full year that was about 20 basis points.
Speaker Change: And then we're also continuing to add to our MPT private label products on the pool finish in tile side.
Speaker Change: We will see some benefit of that in 2025, but really.
Speaker Change: As for our future benefit as the N equals and renovations continue to increase.
Speaker Change: No that's really helpful. Thanks, so much.
Peter <unk>: This concludes our question and answer session I would like to turn the conference back over to Mr. Peter <unk>, President and CEO for any closing remarks. Please go. Please go ahead Sir.
Peter <unk>: Yes. Thank you all for joining US we look forward to our next call, which will be on April 24th when we will release, our first quarter 2025 results.
Peter <unk>: Have a great day. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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