People aren't spending on swimming pools right now, an industry-leading company warns

By Ciara Linnane

New-pool-construction activity may fall 15% to 20% for the year with remodel activity down as much as 15%, says Pool

The stocks of companies that make swimming pools and related equipment were sharply lower Tuesday, after industry leader Pool Corp. issued a profit warning for 2024, citing weak demand for new pools.

The company, which sells pool chemicals, cleaners, filters and building materials, offered the grim outlook late Monday in an update on its expectations for the pool-construction season, which typically peaks from late May to early June.

"The most recent pool permit data suggests persistently weak demand for new pool construction, and with the peak selling season almost complete, we now believe that new pool construction activity could be down 15% to 20% for the year with remodel activity down as much as 15%," the company said in the warning.

As more than 60% of Pool's business involves recurring revenues that are generally not impacted by macroeconomic conditions, it will focus on managing costs, Covington, La.-based Pool said in a statement.

The company is now expecting full-year per-share profit of $11.04 to $11.44, down from an earlier outlook of $13.19 to $14.19.

For more: Summer is here-but pool demand less so, Pool Corp. says

Pool's stock (POOL) was down 7.3% Tuesday and was leading S&P 500 decliners. Rival Hayward Holdings Inc. (HAYW), which makes equipment for residential and commercial pools, was down 9.1%.

Latham Group Inc. (SWIM), which makes residential swimming pools and offers maintenance services, was down 8.7%. Leslie's Inc. (LESL), which makes swimming-pool supplies and products, was down 4%.

A.O. Smith Corp. (AOS), which makes pool heaters among other water-related products, was down 2.1%. Hawkins Inc. (HWKN), which makes chemicals for municipal swimming pools among other products, was up 0.5%.

Camden Property Trust (CPT), a property manager that oversees a range of complexes with swimming pools, was down 1.1%.

Stifel said Pool's lowered EPS guidance was likely outside the realm of even the most bearish expectations.

"Given the underperformance of building materials, we believe the update implies a softer gross margin performance for the year," Stifel analyst W. Andrew Carter wrote in a note to clients.

Higher mortgage rates from mid-March through May are "likely impacting big ticket remodel spending with the weakness following the inflection in the early part of the year," said the note.

The news is negative-to-neutral for Latham Group, he added.

"SWIM guidance is predicated on a 15% decline in new pool starts which balances the advantaged fiberglass business against vinyl with SWIM embracing the most conservative view in framing the expected trough," Carter wrote. "Given fiberglass short cycle, there is an opportunity to recover lost volume or quickly capitalize in an acceleration in demand."

The news is negative for Hayward and neutral for Leslie's, as chemical volumes remained positive, he said.

Truist analysts lowered their estimates for Latham, but stuck with their buy rating on the stock.

"SWIM is still meeting its financial obligations and given its low share price, any company-specific positive data point could meaningfully move the shares," analyst Keith Hughes wrote in a note to clients.

Mizuho analysts reiterated their neutral rating on Leslie's stock.

"Despite some stability in maintenance-related categories - mainly chemicals and equipment - overall demand likely tracked soft this pool season, and did not materialize in any meaningful re-acceleration across the core business," wrote analyst David Bellinger in a note.

Pool's stock has fallen 21% in the year to date, while the S&P 500 SPX has gained 14%.

-Ciara Linnane

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06-25-24 1235ET

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