Pool Corp's Q3 2025: Contradictions Emerge on New Pool Construction Trends, Inflation, Chemical Pricing, and SG&A Growth

Date of Call: None provided

Financials Results

• Revenue: $1.5 billion in net sales, up 1% year-over-year
• EPS: $3.40 diluted EPS, up 4% year-over-year (vs $3.27 prior year)
• Gross Margin: 29.6%, up 50 basis points year-over-year

Guidance:

• Full-year sales expected to be relatively flat to up slightly versus prior year.
• Confirmed full-year diluted EPS range of $10.81 to $11.31 (includes $0.11 ASU benefit realized year-to-date).
• Full-year gross margin rate expected to be similar to prior year with modest Q4 improvement.
• Full-year operating expenses expected to increase ~3% versus prior year (includes greenfield and technology investments).
• Q4 expected flat to slightly up sales and slightly higher margins; Q4 tax rate to be in line with Q1–Q2.

Business Commentary:

* Sales and Gross Margin Expansion: - Pool Corporation reported $1.5 billion in net sales for Q3, up 1% year-over-year. - Gross margin expanded by 50 basis points. - The growth was driven by consistent maintenance activity and signs of stabilization in new pool construction, along with improvements in remodel activity and share gains.

• Chemical Sales and Deflation:
• Total chemical sales declined 4% in Q3 due to deflation.
• The deflation was most pronounced in the sanitizer category, particularly in trichlor, although other chemical categories remained stable.

• The decline was attributed to external factors such as import regulations and overall reduced consumer spending on discretionary items.

• Building Materials and Private Label Growth:

• Building materials sales increased by 4% driven by the company's expansive private label offerings and elevated customer experience.
• The new product showroom displays and marketing support contributed to the growth, enhancing the value proposition for customers.

• The rebranding of National Pool Tile to National Pool Trends aligned the brand with the company's comprehensive offerings, contributing to the private label success.

• Regional Market Performance:

• Sales in Florida increased by 1%, while Texas remained flat, and California and Arizona both saw declines of 3%.
• Florida continued to lead with new pool builds, while Texas showed sequential improvement.
• The deceleration in permits in Arizona and continued pressure on new pool builds in California were linked to regional economic factors and wildfire impacts.

Sentiment Analysis:

Overall Tone: Positive

• Management called Q3 "another solid performance" with "top-line sales up 1% and gross margin expansion of 50 basis points," highlighted technology adoption (POOL360 at an all-time high of 17% of sales), and reiterated confidence in long-term positioning and confirmed full-year EPS of $10.81–$11.31.

Contradiction Point 1

New Pool Construction Activity Trends

It concerns the stability and activity levels in the new pool construction market, which is crucial for future growth and revenue projections.

Are you seeing stabilization in new pool construction and what are the forward-looking trends? - Susan Marie Maklari(Goldman Sachs Group Inc.)

2025Q3: Activity levels seem to have firmed up. Builder and remodeler comments are more optimistic. - Peter D. Arvan(CEO)

How should we assess the momentum from company-specific initiatives contributing to the year, given the strong Q2 performance despite headwinds? - Susan Marie Maklari(Goldman Sachs)

2025Q2: New residential pool construction activity for Q2 increased 3%, while revenue decreased 4%. In essence, demand was solid, but pricing was not supportive. - Peter D. Arvan(CEO)

Contradiction Point 2

Inflation and Pricing Dynamics

It involves the evolution of inflation and pricing dynamics, which directly impact revenue and profitability.

Can you discuss the deflation in chemicals and its impact on your business? - David Manthey(Robert W. Baird & Co. Incorporated)

2025Q3: Deflation is mainly in the sanitizer category. The rest of the chemical business, including balancers and specialty products, is holding up well. - Peter D. Arvan(CEO)

Why was EPS guidance lowered for the year? - Ryan James Merkel(William Blair)

2025Q2: Discretionary and nondiscretionary sales components. Nondiscretionary items like pump repairs are unaffected by price increases. Discretionary items like new construction are affected less than anticipated. - Peter D. Arvan(CEO)

Contradiction Point 3

New Pool Construction Activity and Sentiment

It highlights differing assessments of the current state and outlook for new pool construction activity, which is crucial for understanding the company's growth potential and market demand.

Can you discuss the stabilization in new pool construction and how you expect future trends to develop? - Susan Marie Maklari (Goldman Sachs Group Inc.)

2025Q3: Activity levels seem to have firmed up. Builder and remodeler comments are more optimistic. - Peter D. Arvan(CEO)

For the full year guidance, do you expect continued growth in new pools in the second half of the year? - Ryan Merkel (William Blair)

2025Q1: New pool permits, comping down negative 6% consistently. That is the southern coastal region, primarily Texas and Florida. - Peter Arvan(CEO)

Contradiction Point 4

Pricing Trends in Chemicals

It involves differing perspectives on the deflation trends in the chemical segment, which can impact the company's financial performance and strategic positioning.

Can you discuss the deflation in chemicals and its impact on your business? - David Manthey (Robert W. Baird & Co. Incorporated)

2025Q3: Deflation is mainly in the sanitizer category. The rest of the chemical business, including balancers and specialty products, is holding up well. - Peter D. Arvan(CEO)

Does the 170 basis points of price increase apply across all segments, or is there a differential between chemicals and equipment? - Ryan Merkel (William Blair)

2025Q1: We continue to see deflation on a host of chemicals. - Melanie M. Hart(CFO)

Contradiction Point 5

Technology Investments and SG&A Growth

It highlights changes in the outlook for technology investments and their impact on SG&A growth, which can affect the company's cost structure and competitiveness.

Did your SG&A growth outlook change in Q4? - Garik Simha Shmois (Loop Capital Markets LLC)

2025Q3: The SG&A growth outlook for Q4 is slightly higher, around 3-4%, due to accelerated technology investments. - Susan Marie Maklari(CFO)

Does the flat gross margin relative to guidance imply second-half improvement despite increased product mix headwinds and competitive pressures? - Ryan Merkel (William Blair)

2025Q1: 2025 SG&A expense guidance remains in the range of $825 million to $845 million, which is an approximate increase of 3%. - Melanie M. Hart(CFO)

Q&A:

• Question from Susan Marie Maklari (Goldman Sachs Group Inc.): Can you expand on the early signs of stabilization you referenced and how you see trends into early 2026?
  Response: Activity appears to have firmed—evidenced by building materials growth—and while trends are more positive, further interest-rate reductions are likely needed to bring entry-level buyers back.

• Question from Susan Marie Maklari (Goldman Sachs Group Inc.): You accelerated innovation/technology spend—how should we think about that investment and its impact into year-end and beyond?
  Response: Investments in POOL360 and customer-facing tools (including an outdoor counter app and at-home water-test integration) are designed to boost customer productivity, private-label adoption and long-term growth; spend was accelerated but expected to yield operating leverage over time.

• Question from David McGregor (Longbow Research): With customer consolidation, what levers offset margin pressure over time?
  Response: Our technology suite and integration capabilities lower cost-to-serve and create a competitive advantage by increasing efficiency and stickiness with larger customers.

• Question from David McGregor (Longbow Research): On equipment growth, how much was replacement versus remodel-driven?
  Response: The vast majority of equipment sales are replacement of failed components rather than remodel-driven equipment sets.

• Question from David John Manthey (Robert W. Baird & Co.): Why the chemical weakness and can you break out deflation/inflation by category?
  Response: Chemical pressure was concentrated in sanitizers (trichlor) with mid-to-high single-digit price declines versus prior levels; balancers and specialty products remain stable and overall chemical demand is normal.

• Question from David John Manthey (Robert W. Baird & Co.): How should we think about SG&A leverage as growth returns?
  Response: The long-standing model stays intact; expect some initial expense recovery (incentive comp and limited volume-related add-backs) but continued productivity and long-term leverage from prior investments.

• Question from Ryan Merkel (William Blair): How much is trichlor down year-over-year and what about PVC?
  Response: Trichlor pricing is down mid-to-high single digits versus the prior peak; PVC is improving quarter-over-quarter but remains down year-over-year.

• Question from Trey Grooms (Stephens Inc.): Are you still expecting Q4 to be flat to slightly up and what would drive hitting the high end of the EPS guide?
  Response: Yes—Q4 is expected flat to slightly up; upside to the high end would be weather-related benefits (e.g., hurricane-season tailwinds) and stronger-than-expected margin/mix.

• Question from Scott Andrew Schneeberger (Oppenheimer & Co.): On the Q3 margin drivers, how sustainable are the pricing gains and supply-chain fixes?
  Response: Price increases implemented mid-season are largely through the cycle and competitive dynamics haven’t changed materially; supply-chain improvements are structural—process, vendor partnerships and tech-driven decisions—so gains are expected to be sustainable.

• Question from Garik Simha Shmois (Loop Capital Markets LLC): Any changes to vendor early-buy programs for next season and can you confirm SG&A outlook?
  Response: Early-buy programs remain largely unchanged and the company will participate strategically; SG&A is expected to rise ~3% for the year (Q3 was +5% due to accelerated tech spend and greenfields).

• Question from Jeff Hammond (KeyBanc Capital Markets): What are you hearing on next-year pricing across categories and is there fatigue from customers? Also, where could POOL360 adoption reach?
  Response: Equipment vendors are signaling higher increases (including tariff impact), other categories are at a more normal cadence and innovation helps offset customer fatigue; POOL360 adoption has room to grow—management sees company-level adoption targets in the mid-20s/30% range as attainable over time.

• Question from Steve Forbes (Guggenheim): How does customer wallet share evolve 6–12 months after adopting POOL360 and what do builders request?
  Response: Customers with strong digital integration are stickier and spend more (water-test integration drives private-label chemical growth); tools also support builders and independent retailers for quoting/replenishment, though primary near-term focus is on the installed-base maintenance/service market.

• Question from Sam Reed (Wells Fargo Securities LLC): What's the typical lag between HELOC rate declines and discretionary pool spend, and any preview for your analyst day?
  Response: Lower borrowing costs generally improve willingness to undertake larger projects but there's no precise short-term HELOC threshold; analyst day will be an investor-focused presentation highlighting strategy and differentiation (details to be shared at the event).

• Question from Collin Andrew Verron (Deutsche Bank AG): How large is your tech spend and how much more SG&A investment remains; also, how large was last year's weather benefit you won't repeat?
  Response: Technology spend is modest relative to company size and ongoing (not a large, multi-hundred-million program); more targeted tech investment will continue but not at an outsized level, and last year's fourth-quarter weather benefit was about a 1% sales boost that is not expected to repeat.