Mark Joslin - Chief Financial Officer and Vice President Manuel Perez De La Mesa - President and Chief Executive Officer.

Garik Shmois - Longbow Research Anthony Lebiedzinski - Sidoti & Company, LLC David Mandell - William Blair & Company L.L.C. Kenneth Zener - KeyBanc Capital Markets Jill Nelson - Johnson & Rice Company L.L.C..

Good morning and welcome to the Pool Corporation First Quarter 2015 Results Conference Call. [Operator Instructions] After today’s presentation there will an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mark Joslin. Please go ahead, sir..

Thank you, Maureen. Good morning, everyone, and welcome to our call. I’d like to remind our listeners that our discussion, comments and responses to questions today may include forward-looking statements, including management’s outlook for 2015 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 is discussed in our 10-K. Now, I’ll turn the call over to our President and CEO, Manny Perez De La Mesa.

Manny?.

Thank you, Mark, and good morning to everyone on the call. We had a solid first quarter buoyed by our increase of customer early buy shipments. These shipments are primarily geared to helping our retail customers better prepare earlier for the upcoming pool season.

Separately, the favorable weather benefiting year-round markets was essentially offset by the impact of the stronger dollar on international sales. Overall, solid sales first quarter.

Building materials sales again led the way with 17% sales growth, reflecting both the ongoing gradual recovery of remodel activity and our continued capturing of market share. Commercial product sales were also strong with 14% sales growth, as we continue to gain share in this market segment.

Retail product sales were up 11% spurred by our increase of early buy shipments, but within retail our chemical product sales were up almost 10%, driven primarily by a combination of favorable weather in year-round markets and market share gains.

Our estimated base business first quarter sales growth adjusted for early buys was approximately 7%, which is roughly double the overall industry growth rate and is more reflective of our sales growth expectations for the year.

Turning to gross margins, the small decrease is due to our increase in early buy shipments, given logistical and scale efficiencies early buy sales are typically at modestly lower margins. Our expectation is that 2015 gross margins will be essentially flat with 2014.

Our operating leverage continue to benefit us in 2015 as it has historically, which should result in 2015 being another strong year of earnings growth combined with strong cash flow and return on invested capital. Of course, it’s important to appreciate that we compete in many individual markets.

Each of whom has its unique set of customers and market dynamics. While every market participant starts the year with zero market-share just like us, it’s incumbent on us to provide ever greater value in each case to each individual customer in each individual market, in order for us to realize the results that we strive for.

Nothing can ever be taken for granted and we just continue invest as we have done historically to further enhance our value proposition through our people, our tools and the many resources that we deploy to help our customer succeed. Now, I’ll turn the call over to Mark for financial commentary..

Thank you, Manny. Looking first on our SG&A cost for the quarter are 4% total, 1% base business growth over last year with very good result. We were helped here by the translation of foreign currency denominated operating expenses into dollars as we noted in our release and to a lesser extent by the impact of lower fuel costs on deliveries.

We also benefited from good cost management in many areas throughout our business. As usual, our goal for the year is to grow operating expenses at around half the rate of gross profit growth, which is challenging but we’re off to a good start in meeting that objective this year.

On the balance sheet and cash flow statements results were in line with expectations as one less billing day in February and one more billing day in March resulted in slightly higher accounts receivable growth at the end of the quarter compared to last year with resulting higher cash usage in the quarter.

Our goal here this year as it is every year is to grow cash flow from operations in line with our earnings growth. We see nothing at this point that should prevent us from doing this. During the share repurchases, we used $2.6 million during the quarter to buy 38,800 shares at an average price of $67.83 per share.

This leaves us with $62 million of capacity under our existing board authorization. Before I turn the call back over to the operator to begin the Q&A session, I would like to take a minute to add a little color to our expectations for the year.

As anticipated and discussed on our last call and as we highlighted in our press release and Manny’s comments, our Q1 results benefited from a shift in the timing of customer early buy shipments from Q2 to Q1, which resulted in higher sales and lower gross margin in the quarter compared to last year.

The flipside of this is that we expect our Q2 sales and profitability to be impacted in the opposite direction with the net result being relatively weaker year-over-year results in Q2 compared to other periods in the year.

While the sale shift has no impact on our expectations for the year, we want to make sure that investors tweaking their forecast models take this into account. At this point, I’ll turn the call back to Maureen, to begin our question-and-answer session..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is Matt Duncan, Stephens Inc. Please go ahead..

Hey, good morning, guys. This is Will on the call for Matt..

Good morning..

Good morning, Will..

Good morning. Congrats on a great quarter. First off, I was wondering if you could elaborate a little bit on what products you are selling in the 1Q that would normally be sold in the 2Q that added the three points of growth in the quarter..

Sure, this is primarily products geared to getting retailers prepped for the season. So it would include, for example, pool cleaners, certain chemicals, particularly - especially chemicals that we want to make sure they’re well stocked in, accessories, et cetera..

Okay..

The pretty full breadth of products geared to getting retail stores stocked and ready to go..

Okay. That helps. And switching gears a little bit, regarding the California Executive Order to reduce water usage by 25%. I’m wondering how you expect that order to affect the 18% piece of your business, and if it’s more skewed towards new pool construction or if the green business is going to be affected as well.

So I was just wondering if you could talk on that a little bit..

Sure, two parts, what affect both the blue and green side of our businesses and it would be geared to affecting both new pool construction, as well as the remodeling of pools when the pool is resurfaced, does not affect at all maintenance and repair, does not affect replacement.

So you’re talking about it affecting perhaps something to the order of magnitude of 15% to 20% of our total business including the green business. And now having said that, you got to adjust a few factors here, I think we all understand that there are two fundamental issues in California. Certainly issue is the drought.

The second issue is how California is responding to the drought. The agricultural sector is an example, consumes over 80% of the water in California, and their rates are heavily subsidized.

And in fact the individual water boards in municipalities and counties throughout the state have in many cases artificially low prices for water not only for ag, obviously, that’s both extreme case given how much of the water they consume, but also for residential and commercial use.

So in essence, there is a lot of opportunity to reduce the consumption of water in a way that is not detrimental to society, and in fact, just by bringing in the free market. Part of that is the fact that we on the green side sold a lot of products that are specifically geared to efficient water consumption.

And these smart water products could very well be an instrument used to help reduce water consumption in a smart way with proper pricing of water in the marketplace using the market to price water as opposed to again subsidize rates.

What that would drive is investments in tools to significantly reduce water consumption and that’s something that can be easily addressed. Again, those in position have the wherewithal to act in the best interest of the State of California. That’s my soapbox on the subject..

Well, it helps somewhat. I appreciate it..

But fundamentally to our business there could be some impact in the back-half of year in the slowing of issue of permits for new pools. We have not seen that yet, but there’s certainly a lot of discussion going on. It is a shame that that discussion is going on, because the solutions are so readily available.

And it just takes a little bit of backbone to make them happen..

Great. I appreciate that. That helps a lot. And then last from me, and I’ll jump back in the queue. I’m wondering if you can break out the growth rates between the blue business and the green business in the quarter.

And maybe some insight on how the international business is performing?.

Sure. Let me give you context here. The blue business, base business sales growth was 10% consistent with the overall. So there are two elements here, the green business grew a little slower than that in part because we exited the sale of one particular manufacturer’s products. That’s the reason why that’s a little lower.

And then our European in local currency was in fact high than the 10% sales growth, but when you adjust for dollars it came in, in fact, lower year-on-year in dollars, but in local currency it was up a little higher than 10% with respect to our continuing capturing of market share. I want to take this opportunity.

Mark mentioned the benefit that we got in the expense side from the stronger dollar in the first quarter. Just make note of the fact that in the second quarter, when our international business both Canada as well as Europe are profitable, the stronger dollar is going to cause us a little bit of hit.

So we get our benefit net in the fourth and first quarters from the stronger dollar, but we get a hit in the second and third, and just for those again that are tweaking their models, there is a little shifting there because of the stronger dollar..

Okay, great. Thanks guys..

Our next question is Garik Shmois, Longbow Research. Please go ahead..

Hi, thank you. Congratulations on the quarter. First question is around the early buy program and if you can maybe touch upon how you are observing inventories in the channel right now.

Do you think that your early buy was more of a traditional early buy given the stage of the recovery or was there anything abnormal that occurred in the first quarter that stood out with respect to your customer purchasing patterns?.

Sure, it’s a great question, Garik. Let me just step back and give you a little perspective. The lion’s share of our customers have no inventory to speak of. They buy on a day-to-day basis. Those are the guys who do maintenance, repair, replacement, remodeling and new pool construction.

The only segment of our customer base that has any kind of inventory is the retail customers. And these retailers obviously have their stores and have the inventory in their stores. When you - and I’m giving you that for context, just to give you a perspective.

What happens here is that as the industry have developed over the last few years, typically what happens is there is a selling season for retail and the selling season really begins in the fall and runs through typically till February. That’s when we try to capture additional shelf space with retail customers.

Typically, we begin shipping those early buys, which are really to stock, the initial stocking of customer shelves. Typically that beings in February and runs through April.

Given the improved condition of the economy, given improved credit activity, we have been a little bit more aggressive last year and this year in getting those out there and getting our customers fully loaded and ready for the season earlier, which enables us to better serve them and the rest of our customers in season..

Okay, thanks, sir, for the color. I guess switching to building products, another very strong quarter.

How much more runway do you have in this category and basically delivering double digital revenue growth rates for a long time?.

Would you care to expand on that? When you look at the whole outdoor lifestyle products category, and which is where we are focusing our long-term attention and business on. When you look at that, a lot of that ground has not yet been ploughed.

In other words there is nobody there that is really providing the full suite of distribution services that we are endeavoring to provide.

And when you look at the demographics and homes being more and more of a destination, the demographics with the growth of household formation in southern markets, where you can enjoy the outside of your home to extensively basically year-round, all of those types of dynamics are very favorable for us, and there is a lot of market that we are gaining within the market that exists, but we are also creating new market for products because of the ready availability and the ongoing investment that we also make in working with our customers to help develop them as advocates for investing in the outdoor space..

Okay. It make sense, and my last question is on chemical costs.

If you could perhaps touch upon your expectations for that for this year, I think previously you had anticipated some inflation and talk perhaps if that still the case your confidence in your ability to get on front of the potential inflation later on this year?.

Sure. The logic is that overall price inflation of products that we are buying will run in the 1% to 2% range for the year. At this juncture, I would venture to say it’s still 1% to 2%. In certain product categories, manufactures announce those product increases in the fall and we have passed those on or attempted to pass those on in the marketplace.

So that, at this juncture largely behind us.

There could be spot increases, but other than commodities which go up and down almost in a weekly basis, I think our basic pricing is set at this juncture, pricing into us and pricing into our customers for the pool session domestically, where we are having more of a challenge is in the international markets as our suppliers there in some cases are - their cost base is dollar-weighted.

And therefore, to the extent their cost base is dollar-weighted in those local currency, whether it would be the Canadian dollar or the euro, they’re having to raise prices to compensate for the margin hit that they’re incurring.

So therefore, they’re trying to pass that onto us and we’re trying to pass that on in the market, in those local currencies whether it’d be euro or Canadian dollar. But in terms of the domestic market, it’s pretty steady as it goes at 1% to 2% and no significant aberrations from that..

Great. Thanks so much, and good luck..

Thank you..

Our next question is Anthony Lebiedzinski, Sidoti & Company. Please go ahead..

Good morning, gentlemen.

Just wanted to follow-up on California, so I’ve been reading that, I guess, because of the efforts to conserve water usage that there could be an increase in the sales of pool covers, have you in fact seen that or do you anticipate that to happen?.

That’s very forward-looking. At this juncture, I don’t anticipate any significant change in the sales of pool covers in Southern California given temperatures there - it would run against logic for many pool covers to be sold in Southern California.

It will be more applicable in Northern California, which is a smaller part of the overall market and there could be some increase there but nothing big picture significant..

Yes, it could be more about pool blanket than a pool cover….

Yes..

…which is much lower in our point, so….

Okay. All right. Well, so thanks..

And by the way, we also sell products that help chemically reduce evaporation and there could be a little bit of a pickup in sales in those product categories as well. But the net-net is whether it would be a chemical blanket or a physical blanket on the pool.

I don’t anticipate that that’s going to be a huge deal in the big picture, given the way, where pools are in California..

Got it. Okay. Well, thanks for that color.

And could you give us an update on Australia, how that’s tracking for you?.

Sure. Australia represents about 1% of our business. The three locations are progressing fine at this juncture, no major surprises one way or the other. And, in fact, we had a call earlier this week on update on status and plans, as you know, they are counter seasonal.

So basically, they are wrapping up their current pool season, and we’re kind of making plans for the next pool season as we speak..

Got it, okay.

And lastly, can you quantify the impact of lower fuel prices on your delivery costs in the first quarter?.

Mark mentioned it, it was not material in the big picture, but it did help a little bit in the fact that fuel costs were down in terms of our costs in our delivery fleet..

Yes. I mean, I did mention the impact on SG&A of exchange and this was lower, less of an impact in terms of fuel. So think about of the rate of exchange impact something like that..

Yes, and that would be a less than $1 million..

Got it, okay. Well, thanks for the information. Okay. Thank you..

Thank you..

Our next question is David Mandell, William Blair. Please go ahead..

Good morning, guys..

Good morning, David..

I recall last year the seasonal markets were pretty difficult.

First off, can you confirm that this was true? And second off, if those markets were to normalize this year, what kind of tailwind could you guys expect?.

Okay. For color and context, the 20 - and I’m just giving you a little history here. 2012 was a very good year in terms of weather in the seasonal markets. And therefore that means that people open up their pools earlier than normal. 2013 was the opposite. 2014 was still below average, but not quite as bad as 2013. And at this juncture it’s getting warm.

So I would say probably in the next four weeks or so, we will be able to gauge whether it’s a little earlier normal or little later than normal..

Yes. And we’ve already kind of baked that into our expectations for the year, so….

Yes. On the overall picture, when you look at the factor the big - the biggest poor markets or states represent over half of our business and that’s pretty steady from a weather standpoint..

Okay..

The biggest - the variable is going to affect us maybe by 1% this year, yes, and that’s kind of baked into our numbers..

All right. That’s helpful.

And then how big will be FX headwind on the sales line?.

It would have been about 1% on our sales, about the same as the benefit that we got from the little better than normal weather in California and Florida..

All right. Thank you for taking my questions..

Thank you, David..

Our next question is Ken Zener, KeyBanc. Please go ahead..

Good morning, gentlemen..

Good morning, sir..

Good morning..

So if you did around 11% and 3% was pulled forward, your base business is doing 8%, that 8% in 2Q would be subtracted by the 3% you picked up in 1Q, would that be the proper logic mark that you are trying to move us towards?.

Let me walk you through the math a little differently, because I exclude the 1% that we got from acquisitions and new openings in new markets, okay? So our base business was up 10%..

Yes..

Okay. Take 3% out you’re back to 7%, okay? Now, I would expect second quarter, you can adjust three of that number right, because it’s a - the waiting is different.

So I would expect the second quarter to be more between 5% and 6% perhaps, closer to 6% on GP, closer to 5% on sales, because we get a little bit margin pickup in the second quarter, right, because of that shift..

Yes, good..

So, yes, is on the sales and then third quarter, fourth quarter would be more in a back to 6%, 7% range..

Appreciate it. Calling you from 65 degree in California, pools, that shouldn’t be such a big deal one way or another.

I mean, is there - if you guys look back at prior drought periods whether it’s water restrictions, I mean, is there any real reason to think there will be any impact on new pool construction relative to water restrictions, I mean, we never saw really in Phoenix, so….

Historically, almost every year there is some drought impacts somewhere. Obviously, California is the biggest market, so and it’s been now several years. So the, perhaps, we have to consider this a little bit more serious than we do the one-off cakes that we have in a typical year.

But at this juncture we have not seen anything other than a lot of churn given all the media frenzy around it. But, again, you live in California - you live in Northern California. You’re aware of the environment and situation there, and let the market solve the problem as opposed to trying to create artificial fixes..

So, there is another data point today pointing to new home sales now reaching the cyclical acceleration that many had hoped for. Realizing new pools are generally in existing homes and existing homes did well the other day, price appreciation continues, equity continues to build for those, Middle East existing homeowners that put in pools.

Have you really - obviously, you said the green business induce well due to some product dislocation, but are you start to - starting to see that new - signs of new construction picking up, or you obviously referred to the outdoor space which have you kind of is more of a Greenfield I guess for you guys.

But are you starting to see that in our side - for that new construction side pickup more? I mean, is there any things that you are seeing that point to that equity being spent in terms of lending, loosening, or from equity lines, the credit, or anything like that? Thank you..

Yes. The - on the remodel/replace side, we began seeing that recovery in 2011 that continues to-date, and we’re not back to normal behavior yet, but we’re certainly on our way there. In terms of new pool construction that is lagging.

And I think that, we are beginning to see a term that was used in the financial community about five years ago - four or five years ago, green shoots. So we’re beginning to see green shoots, both on the psychology of homeowners to invest in their homes, obviously that was - that’s a hard hit back in 2008, 2009.

So that is beginning to happen now and in the form of home improvements. And second, we are beginning to see several financial institutions going back in and providing lending based on home equity, whether that’s - we’re doing a first or a second or home equity loan. We are beginning to see that. So I’m not expecting a big pickup there in 2015.

But I expect that as we move through the balance of that decade, we’re going to get progressively more traction there..

Thank you..

[Operator Instructions] We have a question from Jill Nelson, Johnson & Rice. Please go ahead..

Good morning..

Good morning, Jill..

If you could provide some - hi, if you could provide some insight into the Texas market performance just given the drive in oil prices and impact on the industry? Yes..

Sure. Two things, Texas did not have a particularly strong first quarter. But when you look underneath that, it wasn’t so much because of energy or the economic environment in Texas, it was driven primarily, because the weather was not particularly good in Texas.

And when you look at the activity that we’re seeing in April, we’re seeing more normalized levels of activity.

So net-net is, we haven’t seen any headwinds - noteworthy headwinds because of energy, again, most of the business that we do whether it’s Texas or anywhere else is basic pool maintenance and repair, and then associated remodeling and replacement activities on existing pools.

So that other than whether moving it up for a month or two or back a month or two in the year-round markets is not a big deal in terms of having any macro impact.

The - and new pool construction, I looked at the permits through end of March last week and all of the markets in Texas, Dallas, Houston, San Antonio, and Austin, where we - I look at permit information on a monthly basis. In all those cases, it was either flat or better than last year..

Okay.

And then just a follow-up on the comment you made about April, could you talk about maybe just broad based overall, how you’re seeing performance April to-date?.

Consistent with the guidance in terms of what I just spoke about a minute ago and in terms of second quarter and then going on through second quarter guidance I gave earlier..

All right. Thanks so much..

Thank you, Jill..

Having no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Manuel Perez De La Mesa for any closing remarks..

Thank you, Maureen, and thank you all for joining us on the call. We are now totally engaged in the biggest sales and profit quarter of the year with our sales increasing almost every day. Our team is making it happen and we look forward to reporting our results to you on our next earnings call on Thursday, July 23. Have a great day..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..