Pool Corporation 2026 Q3 Earnings Call

Please go ahead. Good morning, everyone, and welcome to our third quarter 2026 earnings conference call.

During today's call, our discussion, comments, and responses to questions may include forward-looking statements, including management's outlook for 2026 and future periods. Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ materially from projected results are discussed in our 10-K. In addition, we have provided a presentation on our investor relations website that summarizes key points from our press release and today's call. We may make references to non-GAAP financial measures in our discussions today. A description and reconciliation of non-GAAP financial measures are included in our press release or on our investor relations website. I will now turn the call over to John Watwood, our President and CEO.

Thank you, Kristen, and good morning, everyone. I want to start by recognizing the people who support our industry. Earlier this month, I had the chance to spend time with about 1,500 employees, suppliers, and industry partners at our international sales conference, and it was one of the most energizing experiences of my first year at PoolCorp. Standing in a room with that many people who care about this industry, our customers, and each other reinforce what makes this company different. Scale built on local relationships. It was a powerful reminder that it truly runs deep here, and I want to thank our employees for everything they do for our customers and for each other every day. I left our conference more convinced that our direction is the right one. Our strategy is an evolution, not a reinvention, of what has made PoolCorp successful for more than 45 years.

During my first pool season as CEO, I deeply engaged with our employees, customers, and suppliers to understand where we win and where we can improve. Our leadership team also spent time in the field and with customers, where we identified specific points of friction we are working to remove. The next step is to translate that feedback into an enhanced customer experience, stronger share capture, and even better operational performance next season and for years to come. On that note, after I briefly touch on our third quarter results, I will discuss our key strategic initiatives and the actions underway, and Melanie will take you through the financials in more detail during her prepared remarks. Net sales grew 4% in the third quarter, reflecting price realization, volume growth in maintenance and building materials, and share gains.

Building materials delivered its fifth consecutive quarter of growth despite a muted discretionary environment, and that growth was driven by our differentiated National Pool Trends, resources, and new product introductions. Chemicals grew 4% primarily on volume. In both areas of the business, our focus on branding, private label, and customer support through education and lead generation is showing up in our results. Equipment grew 5%, reflecting price and healthy volumes and replacement activity as seen in products including pumps and filters. Pool 360 accounted for just over 17% of sales, up from the same quarter last year. Usage is seasonal and typically peaks in Q2, so we measure progress against the same quarter in the prior year rather than sequentially. By geography, results improved from last quarter. Florida, Arizona, and Texas were each up low to mid-single digits.

In those markets, our Pool business continued to outperform, permit data and irrigation and landscape, which is more closely tied to the housing market. California performed similarly to last quarter, while Horizon in California also had growth this quarter. Europe continued its positive trends with 8% sales growth in local currency. Sales to retail customers moved from a 1% decline last quarter to growth of 3% in the third quarter. Pinch A Penny franchise sales to end users went from flat last quarter to up 3%. These results reflect resilient end market demands, our expanded retail support team and customer offerings, and provide clear proof points of our investments translating into growth. Although our sales activity is running ahead of permit data, new pool construction across the industry remains below last year's levels.

The irrigation and landscape business remains tied to housing, which is a challenging end market at the moment. We're operating in a market that isn't giving us much for free. Housing turnover and discretionary spending remains cautious and larger projects are still being delayed. However, our plan doesn't depend on relief from macro pressures. We're focused on controlling what we can control. Gross margin declined year-over-year with higher inbound freight and customer mix remaining the primary pressures as they were in the second quarter, along with the third quarter's comparison against last year's mid-season price increases. We have increased prices on freight-intensive products, including building materials in August to offset rising costs. Those increases are holding and have begun to recover some of the higher freight costs.

We expect to recover more as those increases work their way through the channel and our pricing actions on vendor cost changes take effect at the beginning of next year. On expenses, SG&A grew ahead of sales. We chose to protect those investments because they support next season's performance. At the same time, we are actively managing the cost base. We are also taking a disciplined approach to our network. During the quarter, we opened one location in Florida and consolidated two locations into existing sales centers, using the density of our network to continue serving local demand at a lower cost to serve. Our goal is to invest where additional presence strengthens our position and to use our existing footprint more efficiently where we can.

Based on our steady performance to date and our visibility for the rest of the year, we are reaffirming our 2026 adjusted diluted EPS guidance. Melanie will cover the fourth quarter outlook, which reflects a smaller pricing benefit and a challenging gross margin comparison. We believe the combination of price discipline, private label expansion, and productivity gains gives us a clear path to restoring operating leverage, even in a flat volume environment with additional upside as volumes recover. As we exit the peak season and look toward 2027, we are focused on executing against our four priorities: sales excellence, pricing and supply chain discipline, operational execution, programmatic M&A. Our maintenance-driven recurring revenue base provides resilience, and we see opportunities to grow share with our customers, build density in our network, and execute more consistently across every market we serve.

These are areas where we can take action regardless of the broader market environment, and they are supporting our performance today while positioning us for what's next. I will provide a brief update on each. Our first priority is sales excellence. We are introducing new processes, training, and tools because in our industry, business is won locally. We are implementing centers of excellence to put more of PoolCorp's scale behind our sales centers, providing better information, better tools, and more authority for the people closest to the customer. That is how scale wins in local markets. Over time, we expect these efforts to support top-line growth, share gains, and gross margin improvement. During the quarter, we also moved ownership of our business development initiatives under field leadership and hired a new leader of national accounts and commercial.

We are connecting our sales and marketing programs more closely through better targeting tools and more proactive reporting. Over time, we expect these actions to support market share growth and improve national accounts profitability. Within sales excellence, we are seeing early signs of progress in looking at our sales trends versus permit data, larger customer sales growth, and growth in new customer accounts. Additionally, the 7% growth in sales to commercial customers reflects the customer-centered focus of our team and the resources we have put behind the commercial growth opportunity. Our second priority is pricing and supply chain discipline. We are continuing to sharpen our pricing approach with decisions informed based on detailed analysis across our product lines and regions, not a one-size-fits-all approach.

During the quarter, we tied pricing decisions within our organization more directly to cost and vendor inputs, aligning the cost side of the business with the sales side and creating data-driven decisions. We are also concentrating our focus on private label expansion on chemicals and building materials, where differentiated products offer opportunities for greater growth and margin benefit over time. Through the strategic efforts of our supply chain team in coordination with the field, we generated a healthy operating cash flow benefit from disciplined inventory management, with inventory down 3% from last year on 4% sales growth. Our third priority is operational execution. We are driving higher standards of service per employees across all of our sales centers. Our teams are dedicated to increasing revenues in our recently opened greenfield sites to deliver performance in line with our broader network while also increasing productivity as these operations mature.

We continue to invest in Pool 360 water testing, e-commerce, and integrations with our customers, and we prioritize partnering over building where that's the better path. Above all, we are managing to the customer experience, not simply a metric. Our goal is to be the easiest distributor in the industry to do business with. That means addressing the identified points of friction to further improve the service and product reliability our customers count on. Our fourth priority is programmatic M&A. We remain selective. We look for operational and financial fits, strong culture and talent, and opportunities to strengthen our existing markets or add capabilities that extend our value proposition. M&A is a lever that accelerates our organic growth. It is not a substitute for it. We have the balance sheet and operating experience to be the acquirer of choice in our industry. Our capital allocation priorities remain unchanged.