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Good morning, and welcome to the Pool Corporation Second Quarter 2018 Conference Call. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Mark Joslin, Senior Vice President and Chief Financial Officer. Mr. Joslin, please go ahead.
Thank you. Good morning, everyone, and welcome to our second quarter 2018 earnings call. I would like to remind our listeners that our discussion, comments and responses to questions today may include forward-looking statements, including management's outlook for 2018 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. In addition, we may make references to non-GAAP financial measures in our comments. A description and reconciliation of our non-GAAP financial measure is posted to our corporate website in our Investor Relations section.
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.
My prepared remarks this quarter will be more limited than the previous 77 quarterly investor calls as Pete Arvan will provide color on sales and operations, while Mark provides color on expenses and the balance sheet.
In terms of the 2018 season, after a slow start in March and April activity reverted to expected levels in May and June, albeit constrained by the customer capacity and reduced workdays due to higher rainfalls on selected markets.
As a benchmark, we had our first billion-dollar sales quarter which is noteworthy for our industry. We're expecting ongoing growth in the second half as demand remains strong and the main constraint to growth is customer capacity.
As mentioned in previous calls, we were expecting greater and earlier than normal manufacturer price increases in 2018 given materials and operating cost pressures. Those increases have now started to be communicated and are starting to be passed on through the channel.
While the impact will be felt primarily in 2019 given the late 2018 season timing, there will be some impact on sales and some noise on gross margins in the last four months of 2018. For 2018 the bottom line impact should be fairly mute but it should add to our sales in 2019 and beyond.
As I look at our business, we are stronger and better across the Board. Our ongoing investments in people, facilities, product lines, fleet, technology, marketing and customer service continues to separate us in the marketplace. These investments occasionally result in lumpy expense growth but that's historically been followed by higher operating leverage in subsequent years.
To that end, we have largely kept our EPS guidance intact for 2018 by incorporating the $0.04 pickup in the second quarter due to ASU 2016-09 into our range. Beyond 2018, our model for sustained organic growth is intact with 6% to 9% sales growth leading to double digit operating profit growth and solid mid-teens plus EPS growth.
Now I'll turn the call over to Pete for his business commentary.
That you, Manny and good morning to everyone on the call. Thank you all for taking the time to join us today.
Let me start by introducing myself to those of you who might not had the pleasure of meeting. I am Peter Arvan, the Chief Operating Officer of Pool Corp. I joined the company in January of 2017 and have been leading our North American blue and green businesses along with marketing IT and operations ever since.
As you all saw in our announcement, we had a respectable second quarter with revenue growth of 7% overall and 6% from our base business. This is on top of last year's 7.5% overall and 7% base business growth for the same period. As Manny mentioned, the delayed spring in our seasonal markets led to a slower than normal April but once the weather broke in May, overall demand for our products ramped up in the seasonal markets and that continued into June. In fact, on a same selling days basis, our base business sales increase 1% in April followed by 9% growth in May and June.
Of our four largest markets, only Arizona saw normal weather patterns while in California we saw unseasonably cool weather for most of the spring which delayed Pool activity. Weather than normal weather in Florida from May and June and a very wet spring in South Texas also impacted construction days further compressing the year. Understand that these are year-round markets so we should make that much of this in the second half as again underlying demand is strong.
Despite these challenges, the markets collectively saw 7% growth for the quarter which reflects solid share gains as we estimate the markets grew at roughly 4% collectively. For the same period, our green business grew at 7% all of which is organic.
Switching to gross profit, our base business gross profit grew at 6%, while the total business saw a 7% growth rate. Operating income for both the base business and total company grew at 5% for the quarter. Mark will provide commentary on expense growth in the period and how that affected operating income.
The delayed spring pushback openings of Pool's and the seasonal markets with a greatest impact falling on Pool retailers with weak April demand for chemicals and maintenance products. Despite the slow start, as soon as the weather warmed up in May, Pool's opened demand spike with a retail sales up 4% overall for the quarter. In the commercial area, strength in share gain continue as we experienced 8% growth in the quarter.
From a product view, sales of building materials and associated outdoor living products were strong as we saw revenue increased 12%. Equipment growth in the quarter was 8% again reflecting the strength of the discretionary market.
Now I’d like to provide an update on our POOL360 sales as this has been a focus area for us. Our POOL360 app allows customers to place orders, search for product and even pay their bills without ever leaving the job site. Sales over this platform are up 21% year-to-date which shows the inherent value to our customers.
To facilitate faster service in our sales centers and higher productivity, we have added specialty equipment and priority pick areas to reduce the wait time for our customers getting them back on their job faster further differentiating our value proposition.
Moving on, I would like to comment on two areas that we've been focused on that I think are appropriate to discuss in today's environment which are inflation pressures on transportation costs and a tight job market as it relates to turnover. On transportation, year-to-date the teams have worked very hard to contain inflationary pressures that exist. In fact, the increase in our net transportation costs including third-party freight and fuel are in line with our sales growth.
Lastly I would like to point out that even in today's competitive job market, our attrition rate is down. Our employer of chaise focus has allowed us to attract, retain and develop the best team in the industry between our suppliers and our exceptional team we are able to provide unparalleled value to more than 100,000 customers.
Thank you for your time today. I will now turn the call over to Mark for his financial commentary.
Thank you, Pete.
I’ll start with a quick comment on gross margins as discussed in some detail at our last Investor Day meeting, our big business results for any given quarter will reflect normal year-over-year changes in product mix which will drive some variation in year-over-year margins. However, on an annual basis margins should be relatively flat.
Our results this year reflect that with mix changes driving 10 basis points lower gross margin in the quarter and no change in the year-to-date gross margin as you can see when looking at our base business results schedule.
With five acquisitions and seven new locations opened since June of last year, we had bit more noise in our financials this quarter than most, so let me focus your attention for a minute on that base business addendum included in our press release.
Note here that the excluded business results for the quarter included just five acquired businesses but not the 7 new locations which were opened in existing markets and for our base business definition are not excluded from base business results. These acquired locations contributed $4.4 million in gross profit and added a like amount on operating expense. So there was no profit contribution from these in the quarter and a $1.2 million operating loss year-to-date.
In addition the 7 new locations also had a negative contribution results in the quarter and year-to-date. As we've discussed in the past, new locations and most acquisitions take a number of years to grow into our expected return and are normally dilutive in the short-term as has clearly been the case this year.
Despite the negative contribution from acquired businesses and new locations, base business operating expenses as a percentage of sales were flat year-over-year for both the quarter and year-to-date. So we did not pick up any operating leverage as we would normally expect and flat year-to-date operating margins of 12.2% this year and last.
So let me fill that back a bit to help you understand where we’re at looking at base business expense growth and our outlook for contribution margin improvement. First, as we mentioned in our press release, the U.S. dollar weakened against major currencies compared to a year ago. This favorably impacted our sales and margins while unfavorably impacting operating and non-operating expenses with no bottom line impact net.
The impact to operating expenses was to add 700,000 for the quarter and add 1.8 million year-to-date. The U.S. dollar now sits about where it was a year ago, so I wouldn’t plan on substantial additional impact for the year although there may be some.
A bigger contributions to our expense growth in the quarter relates to changes made to nonexecutive performance-based compensation which shifted some of the incentive opportunity for certain employees to the peak of our pool season. This resulted in approximately $1.5 million greater expense in the quarter than Q2 last year. We expect this higher Q2 cost will be more than offset in the remainder of the year particularly Q4.
Backing up the FX and incentive comp timing impact base business expense growth and the impact of new locations of approximately $500,000, our base business operating expenses would have been closer to 4% growth for the quarter which is more in line with what we're looking for given our expected sales growth.
With the sales contributions we’re expecting as contractors catch up on their backlog over the next few months and the positive impact I just mentioned from expense recognition timing. We expect to see some of the operating leverage we’re looking for in Q3 and even more in Q4. This should get us to our targeted 20 to 40 basis points base business contribution margin growth for the year.
I’ll comment now on interest and other non-operating expenses which were $2 million higher than last year Q2. We’ve already mentioned the currency exchange impact which added $0.5 million to this line in the quarter with the remainder of the cost increase related to both higher debt levels and higher interest rates which I cautioned about on our last call.
For the quarter our average debt was 627 million which was up 20% over Q2 last year while our average interest rate on debt was 3.23% up 35 basis points from a year ago. We will continue to see elevated cost in this line for the remainder of the year adding roughly $2 million in interest cost compared to last year over the back half of the year.
As a reminder, we look to keep our leverage as calculated on a trailing 12-month debt to EBITDA basis at between 1.5 and two times. We ended Q2 at 1.7 leverage, so right in line with our target.
Moving down to taxes you’ll note that we picked up a slight benefit from the ASU 2016-09 accounting which was similar to the benefit we recorded in Q2 last year excluding this benefit our tax rate in the quarter was 26% or 50 basis points higher than the 25.5% pre-ASU tax rate I discussed last quarter as our forecast for the year. This 25.5% rate is still good number to use for the year and we will get there by making up for a slightly higher Q2 rate with a slightly lower Q3 rate.
Turning to balance sheet, total receivables increase from 370 million last year to 404 million this year which was a 9% increase that was right in line with our sales growth for the month of June. Inventories grew a bit more at 12% year-over-year reflecting roughly 40 million deliveries made on midyear purchases discussed by Manny and Pete.
As we grew accounts payable at 10% year-over-year the impact on our cash flow from operations was not significant as you can see from our cash flow statement our cash from operations improved by 5 million year-over-year resulting in a seasonal use of cash for the year of 37 million in 2018.
Note that given the vendor pricing dynamics and how that will impact our purchases this year it is likely that our cash flow from operations will not exceed net income for the year although that should recover and return normal in 2019. I should also point out that PP&E expenditures are down 10 million year-over-year at 25 million year-to-date which is in line with the forecasted $40 million, total capital expenditure forecast for the year that I provided on our last call.
Next on my list is share repurchases which for the quarter were 250,000 shares repurchased at an average price of $140 using $35 million in cash. As a reminder, we target 100 million to 150 million in share repurchases for the year to return excess cash to shareholders and to keep our debt levels within our targeted leverage range.
I'll finish with the mention of our return on invested capital at the end of the quarter which is calculated on the basis of a trailing 12-month after-tax operating income over net invested assets. This metric reached a new high at 28.6% at the end of June compared to 24.2% last year.
Now I’ll turn the call back over to the operator to begin our question-and-answer session.
[Operator Instructions] Our first question today comes from Ryan Merkel with William Blair. Please go ahead.
Want to start off Manny, you mentioned some noise on gross margins on the last four months of the year but you also said that there would be a new date impact to gross margin from some of the supplier price increases. So can you just clarify that comment what did you mean by noise?
So given our cost pressures primarily on raw materials, steel being one prime example given the profile that steel has with tariffs and everything else. But just the raw material cost increases that many factors is incurring. As well as what I have mentioned for the last at least two if not three calls on some of the impact on chemicals, there are price increases taking place and some of them have already been announced.
As they are being announced and there is set data - that they are effective, we typically buy into those increases how much we buy will - it depends on how much the increases are at the individual SKU level.
And then following that we typically raise prices in the marketplace 30 to 60 days later. The noise happens on how our competitors follow or not follow our lead in terms of passing on those price increases. The great majority have the business sense to realize that there's a higher cost and therefore they - just like we do when they pass it on in some cases they don't realize that the facility cost money and it cost money - if they borrow money. So they don’t have that business sense and therefore they don't pass those increases on. And we have to selectively respond to that.
So the noise there is as those timeframe come to place which is really going to start in the September and then move on through the fourth quarter. The noise is that we could have - some inventory gains on the margin side from the fact that we bought in on certain SKUs and that’s how the accounting rates capture it although we price them on replacement cost.
And then in some cases depending on how some of our competitors react in certain markets, they may hold prices and therefore in certain markets we may not - we may be have a price compression or margin compression dynamic.
Overall I don't see any significant impact but again that's largely premised on the fact that our competitors have the same business sense we have in terms of realizing that there are higher cost of doing business and those costs are not only products but also facilities and the cost of capital.
The last point there Ryan is that for 2019 the expectation is that inflation will be more than the norm and you've been following the company for a number of years. And when we talk about our long-term trajectory we’re normally talking about a 1% to 2% average inflation rate. As you know very well for the past six, seven, eight years that’s been closer to 1% if that. And this is kind of like one of those - 2019 will be one of those blip years where we’ll have a little higher than normal inflation which will transfer itself to logically sales growth and all that so.
So little worry on price costs as it relates to the fourth quarter might be offset with some inventory profit but what about into 2019? Would you be worried about price cost in 2019 or with the smaller competitors just be it will be a timing issue and they would eventually pass along the supply price point?
By 2019 those that haven’t passed around will be out of business. So the logic is that that would happen in the normal course and it’s typically that transition period is usually - we may go up in 30 to 60 days from the effective date. Some may do it 90 days or 120 days but at some point in time as they start replenishing their inventories to higher costs, they’re already very marginal as it is. So they will just go on to order very quickly.
Moving on to OpEx growth, so it sounds like fourth quarter is going to have the slowest year-over-year operating expense growth of the year. I am just hoping you can give us a little color what should be the range of OpEx growth in the third quarter and then also the fourth quarter just to calibrate our models?
And I would say not to be too specific but growth rate that we experienced in the second quarter really the first half of the year which was similar in second quarter that will come down I would say by a couple basis points or couple 100 basis points in the third quarter. And then couple of 100 more in the fourth quarter.
So I’ll just give you, kind of general expectation of where we’re headed there. And that has a lot to do with some of the timing differences on incentives and some other costs.
And just a little clarity there, so is it that the incentive comp dollars are actually going to go down in the third quarter and fourth quarter?
Year-on-year, yes.
Year-on-year yes, okay, good.
Remember last year we had a very good fourth quarter and so that's part of the incentive comp change story.
And just lastly and I’ll pass it on, it sounds like you're still excited about the end market, things are still strong you're expecting a solid second-half. I'm wondering can you just comment on July most of days. I don't know if you normally do that, but it would just be helpful if you had a little bit of color there?
Yes, I would say Ryan it’s consistent what Pete mentioned that we were at nine in May and June and the backlogs are still very strong and we’re tracking at a similar rate in July.
The next question comes from David Manthey with Baird. Please go ahead.
First off Mark, you mentioned other expenses being 2 million higher in the second half of this year. I assume that’s for the full house so it's roughly give or take 1 million in each of the quarter?
Right and other expenses specifically was interest and other non-operating income so that's really interest. So looking at higher debt levels and the higher interest rates and of course it depends a bit on share repurchases, timing on execution of that that just roughly looking at $2 million higher expense for this whole second half.
And then on the topic of price increases could, you talk about what sales benefit you saw in the second quarter from price specifically. And then Manny last quarter you said you were expecting 1% to 2% price increases. I think you said closer two than one in the back half of this year. And it sounds like you are no longer expecting it for 2018, but you’re pushing it out to 2019 am I reading that right?
No, first of all no impact in the second quarter on price increases in terms of the many factor price increases that started to be announced. They started to announce them in the second quarter but they were effective mainly starting in the third. To-date all starting in the third given what we been communicated to-date.
No, the expectation was typically in most years on a long-term basis where we look at inflation being 1% to 2% and its one as I mentioned a few minutes ago run closer to 1% and this year it will run closer two for the year and that will be backend weighted. So the front part of the year was pretty much the normal, a very low to no inflation, but the back half as you weight those for the year it will be closer to two for 2018 full year and it will be greater than two certainly in terms of 2019.
So let’s talk about the operating expenses here for a bit. When did the comp plans change, was that a January 1 change?
No, we decided to change in March and what we essentially did this is more granular then probably you guys are interested in. But what we did was we changed about 3,000 employees bonus programs that were tied to monthly sales and profitability change those to be focused more on the five biggest months of the year which are April through August. And same metrics just from 12 months of the year to five months of the year which is when obviously where the busiest people are working longer hours and that's when call it, it’s all stressed.
So let see so second quarter expenses are…
So normally the second quarter would have represented 25% of the bonuses for that those 3,000 employees in prior years. This year represents 60% of the annual bonus.
I see so the third quarter and fourth quarter of this year will both be lower than they were a year ago and then even the first quarter of 2019 will be lower than the first quarter of 2018 because that change rollovers is that right?
Yes.
And then finally I'm just trying to understand I think you explained a little bit but so the program it stilled tied to the same behaviors you’re not trying to drive any new behaviors it's just that you're more closely aligning with when the sales happen is that correct?
And when people are working the longest hours.
The next question comes from Anthony Lebiedzinski with Sidoti & Company. Please go ahead.
So just wanted to follow-up, Manny you may have said this and I may have missed this as far as the extent of the midyear vendor price increases is there a way you can quantify this?
Well they range from zero to about 10% at SKU level and this is on the equipment side. On the chemical side it’s around 4% to 5%.
And as far as your inflation expectations for 2019 you said it would be greater than 2%, but are you it sounds like you may be reluctant to give us more specific range for 2019?
That’s true and the reason for that is that typically the vendors in the business, to the extent they have a price increases typically communicate them in fall. So we have only seen some of the price increases to-date and it will be pretty mature for me to speculate as to what the total would be for next year?
And if there are additional price increases is it safe to assume that you would purchase inventory ahead of those price increases?
Yes depending on the amount of the increase and the stakes available within our facilities.
And as far as the share buyback so if I heard it correctly it sounds like you just still targeting about $100 million to $150 million of share buybacks for the year right?
Correct.
Right, so I guess you have some catching up to do I guess in the back half okay that’s all I had thanks and good luck.
The next question comes from Garik Shmois with Longbow Research. Please go ahead.
I’m just wondering if you can comment on your expectations for base business growth for the rest of this year I think coming out of the first quarter you had expected full year base business growth to be closer to the low end of the 6% to 7% range. You’re tracking in line with that in the first half and now you got price increases coming through. So and you actually had a very strong last several months so just wondering if you could provide some color on how that should end up tracking for the remainder of the year.
Garik there is the - first of all the annual weighted impact from the fourth quarter and the price increases will obviously by virtual of the fact it will be the fourth quarter which is a soft quarter for us on a percentage of sales for the year. And the fact that it only affects a certain set of vendors, the impact kind of diluted, but I think that the year we’re still at 6 to 7. We feel very I call it this way I feel better about where we are on the 6 to 7 range than I did three months ago given what we seen in May and June and month to-date July.
I did want to follow-up on the recent trends, the acceleration the 9% growth that you saw in May and June the continuation here in July. Anything specific that you can call out that’s driving that pickup?
No, it's across the board pool owners obviously have their pools they maintain their pools and that’s always been the case. On top of that they’re renovating Pete mentioned building materials growth up 12%. I mean they’re still spending money and we still continue to grow share and so both of those things fundamental to us is continuing to happen.
The constraint, frankly is customer capacity and in some cases like Florida Pete mentioned about the fact they have a lot of rain in May and June, were it not for that. I feel that we probably would have grown faster than 9% in those two months certainly. So there is a customer constraint as the fundamental limitation and the capacity there to how much they can do in a certain given day.
And then just on the constraint just a follow-up is this beyond just the labor constraints for new pool installations are you seeing constraints as well on the normal day to day maintenance piece as well?
No the constraint is primarily weighted on the more labor-intensive portions of the business. So for example since you open the door with the new pool comment it could very well be given the late start of the year. And given just labor constraint in general that new pool construction may be flattish this year it isn’t because of demands it's because of the window available to actually do the jobs.
And when you look at a new pool typically our products our materials that we provide to that builder of that pool typically represents 20% to 25% of the total cost of the pool. Whereas when you look at other aspects that are proportionately a lot less labor intensive like for example the replacement of equipment. In those particular cases there's really no impediment there.
The next question comes from Ken Zener with KeyBanc. Please go ahead.
Interest expense, Mark you're talking about clicking up a bit obviously 2Q but also the back to the back half. Given where rates are doing I mean can you help us think about perhaps what FY 2019 would look like would it be wise to assume just 1 million more than the front half of 2019 given the trends we’re seeing in the back half versus the front half of 2018 and that would kind of put it at a higher rate obviously for the year?
Well yes Ken certainly 2019 will be up so it’s a question of both the debt level and interest rates. And we are maintaining leverage so you have to kind of model out what that leverage is going to be let’s call it middle of our range 1.75 leverage. How much debt would that translate into and so it's got to be more than 1 million I’m sure in the first half of the year when you factor in both the rate and the debt level.
And what is your guide I apologize but just quickly you probably have it – how much of your debt kind of tied to the front end of the curve?
Well debt is both working capital related and it’s again we use debt to fund share repurchases. So the timing on that depends on when the share repurchases take place number one.
Okay.
It’s definitely front end loaded on the working capital investment and mid spring.
All right and I’ll agree to that. Now Manny obviously there has been more questions on price consistent with your highlighting it. Price increases with manufacturers to you guys out to the market. Are you trying to put this in the context that whilst it’s higher than last year and the year before for certainly for chemicals and some of these other components. But is it really all that different from your experience in general or is there something unique about this versus the last 15 years?
No, this is unique and what happens here Ken is that typically price increases are pretty muted in the overall scheme of things. But every so often there are triggering events and I think the last time something like this happened was I think in either 2009 or 2010 where there was a higher than normal level of inflation that kicked in. So this is what - that’s why when we talk about this in the long range expectations we look at one to two and really what happens is there is five years of one and maybe one of four, or five right.
Yes.
And that’s what we could be looking at depending on what happens with the rest of the vendors announcing their changes if any in the back half of the year.
Then just for the weather comps, I mean it’s amazing just kind of look at de novo mean temperature percent house for the country and see that you’re going to have a weak April and then the fine May and June. As it relates to your the pools up running et cetera, et cetera that took part of the business I understand that. Is there some different impact as it relates to the commercial and/or landscaping business related to those weather patterns because I assume obviously we are talking chemicals and pumps that I mean the discretionary component, is that influenced by the weather as much?
Well there is - okay, there is two parts weather. One is on the seasonal markets when pools are opened that's what part one. Part two is in the year round markets and in the seasonal markets precipitation is the next factor in terms of certain bodies of work.
For example, renovating a pool or building a new pool. You need to be reasonably dry to be able to do that and that affects also irrigation. So on the irrigation side of our business, yes if it's too wet it typically - it delays that body - that aspect of work.
Now for us, we still have a very strong I mean we as Pete mentioned we were up 7% in the quarter organically on the irrigation side of our business. As well as we are like 8.5% on a year-to-date basis on that side of the business. So we’re clipping along well across the board in the four biggest markets again as Pete mentioned four biggest markets despite some other weather challenges we were still up 7% in the quarter.
So that speaks volumes about how we’re transacting business. It also speaks well about the fact that demand is there and soon as our customers can work they work.
Yes, it’s very tight. I wonder going just back to the price given that you talked about it in '09 and 10. If tariffs, chemicals other things are adding to prices because in other building material categories what we've seen is obviously the price effected by the underlying commodity. So when it goes up prices go up, can you talk about the potential deflation that not right the back half of 2018 not the front half of 2019. But as steel tariffs - other tariffs these inflationary components were to subside what is your perspective on what that might mean for pricing relative to what we’re seeing right now retreating? Thank you.
It depends on the manufacturers, it depends on the order of magnitude, it depends on a lot of variables. So it will be difficult for me to speculate.
Is there a context for Hayward or Pentair, I mean is that - getting prices they need to and then they’re retreating and then just holding margins at a much higher level realizing two of the three are private?
Well no two are not public because Zodiac is now part of Fluidra and are now public. But going back to the answer to the question, steel certainly affects their costs. But there is a lot of other factors for example plastic and the cost of oil that plays into some of their costs. Some of the actual raw materials used in for example our salt chlorinator or salt cell, that’s gone up a lot specifically.
So therefore there are some materials independent of the higher profile call it steel was effective by tariffs essentially that may go up or down. But there's a lot of underlying other elements as well that has put cost pressure on them which has prompted them to do what they are doing and labor is certainly a factor.
[Operator Instructions] The next question comes from Brennan Matthews with Berenberg. Please go ahead.
I wanted to ask real quickly on the POOL360 app, which I believe you said was up around 21% year-to-date. Is there any, like, efficiencies like coming into play? I mean, any savings on labor on that, that we should think about going forward with - as more people kind of use this tool?
Sure, certainly there is going to be some, but it’s still relatively small so it’s growing at a 21% rate. So in the future it would have a larger impact, but the percentage of our total rate now would suggest that the overall impact in the short-term is going to be small.
And then, just kind of on the inflation, and I understand that it's getting higher, but - and this is more so related to new pool construction. I mean, is there a point where you think that when you think about higher labor cost and labor tightness and then more inflation on kind of the products side, where people maybe put off installing a pool? Or is just the demand so great there that, that should not be an issue for the near future?
Yes, if you look at and have a perspective here, new pool construction is still down about 60% compared to what it was 12 years ago. And if you look at other like discretionary expenditures, they have in fact recovered faster than new pool construction has. And there is, I think two key reasons for that. One reason is the availability of financing. Since a new pool - view is a home improvement. And home improvement lending is still very depressed.
And the second factor is labor capacity when you are manufacturing something in a plant and you’re protected from the environment, you can work pretty much every day. And that's not the case when you're building a pool so or basically we do in your outside space.
So that's been a constrained in terms of the ability for that to ramp up together with the other like discretionary expenditures.
This concludes our question-and-answer session. I would now like to turn the conference over to Manny Perez de la Mesa for any closing remarks.
Thank you, Anita, and thank you all for joining us today. Our next call will be on Thursday, October 18, when we’ll discuss our third quarter 2018 results. Thank you and have a great day.
This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.