Pool Corp (POOL) 2012 Q2 法說會逐字稿

Good morning and welcome to the Pool Corporation second-quarter earnings conference call. All participants will be in a listen only mode. (Operator Instructions) After days presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded and I would now like to turn the conference over to Mark Joslin, Vice President and Chief Financial Officer. Please go ahead.

Thank you, Emily. Good morning everyone and welcome to our call. I would once again like to remind our listeners that our discussion, comments and responses to questions today may include forward-looking statements including managements outlook for 2012 and future periods. Actual results may differ materially from those to discussed today. Information regarding the factors and variables that could cause actual results to differ materially from projected result is discussed in our 10K.

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. Well, it was a very interesting quarter as the early start to the pool season resulted in an earlier wind-down. Probably the best reference point is chemicals, our largest product category. In a market with roughly 1% growth in the install base of pools and very limited inflation, we finished May with year-to-date chemical sales up 12%, an unprecedented growth rate for this product category.

Well, June proved to be a month of adjustments as retail replenishment declined and we finished June with a year-to-date chemical sales up 6%, a more normal growth rate given the market and our typical share increases. Overall for the quarter, our Blue business sales were up 4.8% with the three largest markets -- California, Florida and Texas -- each up between 3.8% and 5.4% as pool maintenance and repair continued to represent a significant majority of our sales. Year-to-date, our Blue business sales were up 7.4% and really over 8% after adjusting for currency, which is consistent with our expectations. Our Green based business sales were up 10.7% in the quarter and 7.3% year-to-date, also in line with our expectations.

As noted in the press release, the stronger dollar, especially relative to the euro, adversely affected sales, gross profit, operating profit, and earnings-per-share. Our sales growth in our strategic priority customer segment retail was up 6.8% year-to-date as the June adjustment negated the weather benefit through May and represents primarily market share gains as there was effectively no inflation impact. Our strategic priority product category, building materials, had 16.7% sales growth year-to-date, primarily driven by market share gains with some recovery in remodeling activity. Given the sales slowdown witnessed in June and early July, we are cautious about our sales growth projections for the second half. It is this caution that's the primary factor for our reducing the high-end of our -- of the EPS range. While certainly the macro-economic environment leaves a lot to be desired, the relative year-on-year impact reasserts our expectation that overall industry sales growth will be 3% to 4% for the year with market share gains driving our out-performance of the industry.

Gross margins, being down a bit in the quarter, was not a surprise given the inventory gains realized last year from the mid-season price increases but the competitive market environment, with certain competitors irrationally selling products at prices that only served to aggravate their precarious financial position, makes no business sense. Fortunately, we have much more to offer than low prices and are able to grow share by providing our comprehensive suite of services solutions to help our customers succeed. These programs help mitigate the competitive market pressures coupled with our internal disciplines to avoid selling to unprofitable customers.

An item of recent interest, given the difficult economic climate, is our European business. It helps for perspective to note that Europe represents 6% of our total sales and 2% of our profits. Despite all the bad press regarding the European economy, our base business sales in Europe were down only 3.6% through June in local currency versus an 11% increase in the first half of 2011 as we continuously and gradually increase market share. Just like in North America, our share gains are earned through superior execution based on our investments in talent management, development, technology, marketing and altogether combined with the outstanding commitment of our people.

Another item of interest has been our Green business that, for perspective, represents 7% of our total sales and has suffered as that market declined by more than 60% from peak levels with the collapse of new residential construction. While new construction appears to have stabilized, the progressive actions taken by our team have translated into solid sales and share gains and a solid Green bottom line in 2012. Mark will fill you in on our expenses receivables and inventories but my one-word summary of these is solid.

Our base business addendum also serves to identify that both in the quarter and year-to-date our recent acquisitions are coming along well with a modest profit contribution. It's important in these cases to recognize both the members of the acquired entities for their openness to a new culture as well as those involved with the integration of those entities who commit long hours to ensuring a seamless transition.

To summarize the quarter year-to-date and projected 2012 results, the key highlights are, first, we have to date and should finish 2012 with record diluted earnings per share in a still challenging environment with new construction still down roughly 70% from peak levels and with depressed discretionary expenditures. This will mark our third consecutive year of 20% or greater diluted earnings per share growth. We have year-to-date and should finish 2012 with a 20% contribution margin on base business sales growth as we leverage infrastructure and we realize continued share gains. Third, we have managed working capital efficiently to realize strong cash flows which we have and will deploy to further strengthen our business returning the balance to shareholders in either dividends or share repurchases. At this point in our year, where many in our Company have worked very long hours to ensure that our customers are provided with exceptional service, our peoples commitment to our customers is unsurpassed. I am truly grateful for their efforts to provide exceptional value every day and very proud of their accomplishments.

Now alter the call back over to Mark for his financial commentary.

Thank you, Manny. I'll start with a couple of comments on SG&A expenses. Overall, we are happy with our execution here as excluding acquisitions expenses were down 2%. This was driven by a lower incentive accrual in the quarter, as we've discussed in the past, and by currency fluctuations with modest expense increases in other areas. These results were in line with their guidance on SG&A given on previous calls this year and reflect our expectation of modest expense growth overall for the year.

Moving on to the balance sheet and cash flow, we continue to demonstrate good working capital management with net receivables up just 2% year-over-year and inventories up 3%, including receivables and inventory from acquisitions. Our receivables continue to trend positively as reflected by days sales outstanding, or DSO, of 29.3 days this year compared to 30.7 days a year ago. The low growth and our working capital for the year, combined with higher earnings, resulted in cash flow from operations of $33.5 million at the end of June, compared to cash usage of $18.9 million year-to-date last June, an improvement of $52.5 million. As already mentioned, we did a mid-year inventory buy in 2011 which increased inventories and reduced payables last year so the year-over-year improvement needs to be tempered with the impact of this. Having said that, we are well on our way this year to achieving our goal of cash flow from operations exceeding net income for the year. Our net debt at quarter end was $259.5 million, which was down from $268.9 million a year ago, while our leverage ratio is measured using a trailing 12 month debt bases, dropped to 1.66 from 1.75 last year.

Let me now update you on our share repurchase and share count. During the quarter, we repurchased 1.1 million shares at an average price of $36.38 with no shares repurchased yet in July. This brings our year-to-date share repurchase total to 2 million shares and current board authorization to 29.1 million -- I'm sorry, to 1.2 million shares and current board authorization to 29.1 million.

That concludes my prepared remarks. I will turn the call over to our operator and we will begin a question-and-answer periods. Emily?

(Operator Instructions) David Mandell of William Blair.

Good morning. Given your guys discussion of the competitive pricing environment in the quarter, how do you view your competitors inventory levels versus where they have been historically and where they should be now?

David, that's a very perceptive question. We fine tune, obviously, replenishment during the season on a regular basis and probably a little bit quicker and -- in making adjustments there than our competition. And in fact, given the early start to the season, every indication is that our competitors, much like us, adjusted their buying parameters and bought a little bit more aggressively in March, April and May given the activities realized. We began to adjust our replenishment in the second and third week of June as we saw the year-on-year sales rate adjust down but I expect that a good many of our competitors did not and, therefore, they probably finished the month of June a little heavier than they would otherwise have finished. And that, I think, when I look at some of the competitors and some of the actions taken, particularly in the month of June, apparently they wanted to get rid of some of that inventory and that is why they were a little bit more aggressive than normal in discounting their pricing.

Alright and then one other question. Looking back, do you still believe that your first quarter estimate of 10 million to 15 million of demand pull-forward is still relatively accurate?

Reflecting on that and given what we have seen to date, it probably is a little light and certainly there was -- I would say at least 10 million to 15 million, and may have been closer to 20 million pools from April into the first quarter, but what happened here is that there was at least that much pool from net from May into April and then in turn from June into May. And I think, again, when you look at chemicals and you look at major product categories, the biggest hit in June sales year-on-year was chemicals. And chemicals is a nondiscretionary item with a caveat being that customers are -- particularly retail store customers -- do have an inventory of chemicals and therefore when they see that demand for replenishment decline because people already got their bucket, or their first bucket or second bucket of the season and that replenishment slows down, they in turn order less from us. So -- but it's nothing to do so much with the economy at all but more so nondiscretionary item that just required less.

There is also another point, which is important to reference, and we don't like to use weather as a -- in our discussion but June this year was on average cooler than June last year. And if we look at that by state, there is a very strong correlation in terms of our state-by-state performance in terms of sales versus this year's June-versus-June whether.

Thanks for taking my questions.

Thank you.

Luke Junk of Robert W. Baird.

Manny, Mark, good morning and thanks for taking my question this morning. First question would be -- just to touch on the incentive [count] accrual, Mark, I know you've referenced that obviously there is an adjustment to that this quarter is the growth slowed -- just curious that if you look to the second half of the year and thinking about mild SG&A, is it possible that we could see some sort of catch-up where you'd have to accrued at a higher rate in the second half if things got better or do you guys just look at that as a good trouble to have as the whole business is getting better?

Yes, based on the guidance we've given, our expectation would be for lower incentive comp in the second half of the year versus last year.

Okay.

And overall, given that difference similar to what we've seen this year, is on a based business level, net expenses to be essentially flat, may be modestly down.

Okay. That's helpful. And then within that, looking at based business growth coming in at 5% this quarter and looking in the near term, at least, given the early end to the peak of the season, that we could be at or below the lower end of what you've presented as kind of a 5% to 8% growth range -- thinking about what that means for contribution margins and what you are doing with the base business growth -- are we still looking at 20% contribution margins or about that range in the second half or some reason to think about that differently?

No I think 20% contribution margin on base business sales growth is very reasonable for the year. That's basically where we are for the first six months and I think, again, for the balance of the year that's reasonable. In terms of base business sales growth and, again, it's 7.4% for the first half of the year, and that is after a 1% or so impact from currency. So when we had the call last quarter, I was looking at 5% to 8% for the year -- I'm still looking at 5% to 8% for the year. Currency could help us or hurt us. Last year, for example, our currency was a 1% benefit in the first half of the year and this year it's a 1% hit. So -- and another factoid is that last year our sales were, in the second quarter, up 8% in change, I think, of 8.3%, including a 1% currency benefit. And this year they are up 5% and we have a 1% hit. So the difference is really 6% versus 7% as opposed to the reported 5% versus 8% because of the -- primarily the euro going from $1.30-something to $1.20-something.

Okay. That's helpful. And then last question for me this morning would just be in terms of the gross margin, and I know you said at some unfavorable changes in customer mix as one of the headwinds in addition to price, is it correct to read that as a larger mix of large customers like pool builders versus smaller service companies?

No. The mix there is -- and part of this is created by the pull forward -- but let me just step back -- in terms of order of magnitude, probably the biggest factor in the quarter is that we did not have the opportunity buy -- that we had last year with mid-season price increases so therefore that helped us last year in the spring and didn't help us this year because it didn't happen and the inventory gains as a result of our buying into the price increase. So that is probably the number one factor -- some noise about competition, particularly in June, as try to rationalize some inventories in the product competitors. And then the third factor, and the least significant factor of the three, would be the customer mix. And in that regard, if some of that nondiscretionary items that were pulled forward into the earlier part of the year, for example when people open up their pools and they have to fix the pump or the filter, those types of pull forward activity translated into some of that margin moving forward and nondiscretionary items, as you can well imagine, are modestly higher gross margin than discretionary items. That is really the cause for that. It's more driven by the pull forward.

And then just one more quick one if I could -- in terms of the demands set on, Manny, in your prepared remarks you mentioned some improvement in some of these more discretionary expenditures. Can you maybe just talk about what you're seeing in terms of pent-up demand in these types of things, whether it's similar to what you saw the first quarter or if we're seeing a little more traction on these types of things?

Well there's two parts to discretionary. The most discretionary in our business would be new pool construction and that really hasn't changed in any significant way. Our expectation for the year is 55,000 to 60,000 new pools in the United States and that expectation is pretty much coming along. Some states are a little -- running a little higher, some states are running a little lower than last year. Our number last year was very similar to that so in that segment there is no significant change. And just for perspective, in the peak back in 2005, 2006 that was over 200,000 pools -- in-ground pools built in a year. So it's getting very depressed, 70%-plus versus peak years.

And the other question is, well if real estate is stabilizing, why hasn't that had an impact? And as I've communicated in the past, we believe that will have an impact. It will be a lagging impact of one to two years later because the two factors that adversely affect that decision from a consumer standpoint, one, being the capacity to finance it and, secondly, the consideration of their home as an investment. It takes a little bit more than just a couple of quarters of stability in real estate values for that to really play out. What has benefited us, and it started really last year and continues this year, is on the remodel replacement activity. And these are lower dollar discretionary items where consumers are beginning to relax their pocketbooks a little bit and the key category there that would look at is building materials. And as I reported earlier, our sales in the building materials product category is up 16.7%. Now, I will tell you that for certain the industry's growth rate in that segment is probably less than half that because we are gaining significant share in those areas. But still, it's certainly more positive than it was back in 2009 and 2010.

Perfect. Well I appreciated you taking all the questions. Very helpful. Thank you.

David MacGregor of Longbow Research.

Good morning. You say that amongst your growth drivers of sales price inflation -- I was wondering if you could just talk a little bit about that and if there was any way to quantify that that would be helpful as well.

Sure. Price inflection -- our expectations for the year is that it would be 1% to 2%. It's easy for us to quantify that in certain product categories and where we have quantified it, in fact, it falls right in that 1% to 2% range. There are some product categories where there is some varying levels -- modest but varying levels of deflation and nothing jumps out as being much more than a 2% or 3% at the high-end. But the weighted average that we look at is more along the lines of 1% to 2% for the year.

Okay. Thanks. And then the second question, just with respect to the irrigation business, I know you've sited that the business is driven primarily by new-home construction but I wondered if you could just talk about your assumptions regarding business in the second half as it would pertain to the drought conditions right now. And does that make a meaningful difference in terms of what to expect?

Nothing in a significant way. The drought conditions, sustained, helped the Green business and I think one of the thesis for our investment in that business in 2005 and back from '99, 2000 when we began looking at it was the fact that water over time will be more and more of a scarce resource. And therefore, while people still want to have -- for not only aesthetic but also from a planet and environmental reasons -- to have landscaping and plants and things of that nature, there will be greater need for that in landscaping and in lawns and everything else to be watered in a much more efficient fashion than is currently being done in many cases. So that business opportunity there that we have is more long term, as we think about just about all our business, and -- but it's not so much a knee-jerk reaction -- you know, there is a two-month drought, now we're going to put in irrigation -- there is more of a longer-term reaction.

Great. Thanks very much.

Thank you.

David Mann of Johnson Rice.

Thank you. Good morning. A few questions -- first of all, can you clarify, in terms of June and July, the math could suggest that you are running negative based business then. Is that the case?

No. In June we were basically flat based business on a daily sales rate basis and in July we are very modestly positive.

Okay great. And so then in terms of the guidance for the year being 5% to 8%, would it be reasonable to expect that you are now thinking Q3 will be below -- Q3, Q4 will be below that 5% lower end?

No. It could very well be the low 5% lower end.

Okay. That's helpful. In terms of gross margin, I think on the last call Mark talked about Q2 through Q4 being somewhat flattish, maybe even a little positive gross margin. Mark, could you give an update on how we should think about second-half gross margin compares?

I think I mentioned that that was our expectation was for flat positive, although I threw out the caveat that we had very difficult comps given the mid-year price increases on the non-inventory purchases. And, really, when you look at last year, I think our second-quarter gross profit was up 50 points and third quarter was up 60 points. So we had tough comps looking at that. So our expectation at this point would be we are probably not going to get to the positives side that we were looking for.

And is part of that due to the -- going back to, I think, the first question on the call -- that you are still seeing some pricing pressure as some of that inventory excess in the -- your competitors is being cleared?

Yes. I'd say that the -- as significant, if not more significant, in the -- certainly in the middle part of the year is the impact that we -- or the benefits we got last year from the mid-season price increases. I think the second impact is the pricing pressures and that's going in like the order we had, I believe, in the press release. And again that is some inventory rebalancing and things of that nature taken place as some people look to convert inventory to cash. So -- and when you look at this you are talking about very, very spot cases in different markets here and there. And it could be a 20 BPS impact? Sure. It's not significant in the overall scheme of things. It is not like there is a mass sell-off or anything.

Understood. In terms of uses of cash, this quarter with the return of cash to shareholders with the buyback, I was looking back and it's not typical that you are buying stock in the second quarter as much. Is that say something about what you are seeing on acquisition opportunities or is there still a robust pipeline there?

There is still a robust pipeline but when we are talking about generating close to $100 million of cash flow, that dwarfs what we would need for acquisitions. And more than -- far more than what we would have for dividends or for regular CapEx. So that basically is the situation we're in and we're in a very comfortable debt to EBITDA position at 1.6 in change Mark referenced. So we'd like to stay at a 1.5 to 2 times debt to EBITDA and the fact that we're 1.6 in change after buying back 40 million shares plus -- $40 million worth of shares year-to-date is kind of indicative of our cash flows.

One last question. I think you were opening a center in South America. Did that open? And just any comments on your thoughts about the South American market.

Sure. We opened a third location in Mexico. That just opened. We are looking at opening a location in Columbia. That is targeted for the latter part of the year so that really won't play into this year at all. And we opened up the location last year in the spring of Puerto Rico -- in Puerto Rico which is coming along very well this year.

Very good. Thanks a lot, Manny.

Thank you.

Anthony Lebiedzinski at Sidoti and Company.

Good morning. Just a follow-up on the competitive pricing pressures. Which markets did you -- did you see that across all of your markets or any markets in particular that you would want to comment on and also product categories?

No. I don't want to comment on any specific base that could lead back to -- I prefer that be kept as a general comment although obviously it's not everywhere. Probably the most foothold item, ironically, is chemicals. And it makes frankly no sense because consumers aren't going to buy more chemicals because the price on a 25 pound bucket is $3 less. So it doesn't do anything for demand. But when you are little bit heavy on inventory and you want to move some stuff, it is an easy item to move. So that's an item that has taken probably the greatest hit overall in terms of year-on-year margin.

Got it. Okay. And as far as the back half of the year, can you just touch on -- I think on our last conference call you talked about the third quarter having a couple of less selling days so just overall your top-line expectations for the next couple of quarters, how should we be thinking about based business sales growth?

Sure. Two things -- one is, again, we are looking to finish the year with a 5% to 8% rate and currency throws that plus or minus a percent but 5% to 8% is a range to kind of put currency on the side. And we do have one less sales day in the third quarter and the same number of sales days of the fourth quarter. So that is going to hurt us a little bit in the third quarter. You figure that will impact the third quarter by about 1.5% in the quarter, given that we have call it 60-plus sales days in a quarter. So you just simplistically take 1 divided by 60-plus change. So there -- we're going to be looking at, in the third quarter, I'd say a low to mid-single digit but call it 2% to 4%-type number for the third quarter. And, again, part of that is the fact that you're taking off 1.5% for that loss sales day. And in the fourth quarter would be more normal, closer to mid-single digits and overall for the year, again, falling in squarely in the 5% to 8%.

Okay. That's helpful. And I know you've commented on the pool construction. Just curious what kind of trends are seeing? And I know in the big scheme of things it's not as -- nearly as big but just, overall, your above-ground pools, what are seeing there? Just curious about the trends in that business.

Sure. Well, as I mentioned earlier in-ground pools, which again is a different type of expenditure, usually $30,000-plus from a consumer standpoint, that is still extremely depressed -- probably finish the year at 55,000 to 60,000 pools -- pretty much what we expected similar, if anything, modestly better than last year but not significantly so. Above-ground pool which is much more of an impulse item, more weighted towards the northern part of the country and Canada -- that has had -- we have had very good results this year. Part of that certainly is attributable to the benefit of weather and the very mild winter. And even though above-ground pool sales year-on-year were down in June, we believe that is all related to sales pull forward because through June our sales of above-ground pools are up double-digit percent. So, again, I think that is a direct weather benefit. We've also done some things internally to improve our service levels in terms of the above-ground pool category so I think those two factor better and our service improvements have both contributed to our double-digit sales growth in aboveground pools.

Okay. Thank you very much.

Keith Hughes of SunTrust.

Thank you. Manny, referring back to our comments on the building materials being up 16.7% year-to-date, did you see deceleration as the month had gone along in the year in that business or has it remained more consistent?

That segment -- certainly there was some volume brought forward as people did more remodeling earlier in the season than would be the case. So there was some level of deceleration but that was still nicely positive in June.

Is this the kind of business that you can detect this ticket of what kind of remodeling people are doing or is that too difficult for you to get that granular?

There's two ways to cut it. Frankly, we could probably decipher it if we dug long enough. I look at it in an aggregate by individual product component. So whether it is pool finish versus tile versus a heater -- so we looked at those -- and because it's remodeling and replacement and lighting -- so we look at those types of individual product categories and aggregate. Now, most consumers do this type of remodeling and replacement activity in pieces as opposed to doing one comprehensive all at one time. I mean, some do all at one time but most do it in pieces. So therefore the cost may be $1,000, $3,000, $5,000 at the outside increments and they do it over a several year period of time as they re-enhance their pool.

The final question on the chemical prices, are you starting to see chemical prices loosen or fall in the last month or two?

Yes, we have seen some competitors that are quoting pricing that are -- frankly, don't make any sense. They just give us some excess inventory. But overall, when you look at chemical pricing -- in fact chemical pricing is very, very modest. Again, 1% to 2% inflation year-on-year.

Okay. So you're not seeing it from the chemical produces themselves, it's just more some of your competitors?

Yes.

Thank you.

(Operator Instructions) Brent Rakers of Wunderlich Securities.

Good morning. Maybe wanted to talk about -- see if we can talk about the chemicals data you gave, Manny, early in the call a little bit different way. Do you have the numbers available for chemical sales in Q1? And then maybe could you give us that Q2 number as well?

You know what? I don't have it at (inaudible). Sorry. Mark has it here. We have Q2 chemicals and Q2 chemicals overall were up 4.3% in terms of sales growth. And that is after factoring in the fact that they were down in June. Year-to-date, as I mentioned, they were up six [6.1%]. So it gives you an indication of the fall-off and, again, a very strong season through May that kind of like went negative in June.

Okay. And, Manny, by chance do you have the equipment numbers as well for those two quarters?

We don't have equipment in aggregate. We have equipment by individual category. And just the highlight, when you look at equipment in aggregate, okay? Equipment in aggregate for the quarter was -- were basically up in the mid-single digits percentage wise when I'm looking at the individual components. And as I go to the month, equipment behaved a lot better than chemicals overall.

Okay. And I think earlier in the call you also gave some data for California, Florida and Texas and I think the range of growth of the quarter what I think 3.8% to 5.4%. And, Manny, when you look at those markets, I guess when I view them, it's fairly non-seasonal market as a whole, why would you -- why would there be pull forward in those markets? Or were those markets negatively affected the way some of the other regions of the country were in the quarter?

Well, specifically, if you go to June as an example and you go, in fact, June, the quarter and June and the quarter, specific, the best performing markets of the majors relative to year-on-year was Florida. And Florida had the best year-on-year weather comp. In contrast to that, the worst of the three was California and California had the worst weather comp. So it's basically looking at -- and this is looking at temperatures, specifically year-on-year -- a very strong correlation in terms of both the month of June and the quarter in terms of year-on-year weather comps tying into individual state performance.

Okay and last question -- you may have talked around this but a lot of the premise over the next several years is that there will be this initial recovery in some of this deferred equipment and other related spending and then ultimately you will get the recovery in new construction. But you may be talk through -- give us a little clear indication of how you think the recovery in the first part of that equation is going this year? And maybe even take us last year, this year and next year -- kind of, what is your thought process in terms of development of that recovery?

Yes. Thank you, Brent. That's great to provide that perspective for the investor shareholder. When you look at our business and you look at the depressed level of replacement remodeling activity where we have witnessed a significant decline in consumer behavior or pool owner behavior from 2007 to 2009, we saw -- we began to see some of that recovery in terms of that behavior in 2011. We are continuing to see that now and, again, building materials is probably the greatest testament to that with that certainly growing much greater than the installed base of pools or anything along those lines. So that is beginning to come back and we see that gradually happening over the course of the next five years to seven years to get back to normalized levels by, according to our schedules, 2018. There is also, coupled with that behavioral change, we also have the increasing age of those pools which are the ones that are the most ripe for replacement and remodeling activity. So those two factors, the aging of the installed base coupled with gradual recovery of consumer behavior to normalize levels, we believe are going to be a very -- and provided a little bit of a tailwind overall over the next five years to seven years in those product categories in those segments.

In the case of new construction, we have a little bit more of a conservative view there and given the fact that this year real estate values appear to be stabilizing after, whatever, five years in decline, we believe that is good and that as those real estate values begin to gradually appreciate and real estate consumers view their homes as more of an investment than an expense, we believe as that begins to happen, that will begin to contribute to a recovery of a new pool construction to more normalized levels. But in that particular case, as we've incorporated in our investor presentation and the like, we believe that that's going have a later impact and be more of a benefit to us, the industry, and to us directly in the back half of this decade and, therefore, with negligible impact in the near term in terms of '12 and '13 and '14.

So basically, what you've got is -- just to summarize -- you've got an existing base, which is growing, of pools which need to be maintained and drive all our maintenance or repair type expenditures or sales to -- and expenditures on the part of the consumer -- that's going to grow at a modest rate. We're going to grow faster and that's because we always take share and as we provide more value and do that better for the customers, that's a very rational thing that's part of our legacy and our history, given the investments we've made. But part two of that is we'll have tailwinds given first, driven by the replacement remodeling, and then later on primarily driven by new pool construction.

Thank you.

Thank you, Brent.

This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Perez de la Mesa for any closing remarks.

Emily, thank you again for doing your job here and thank you all on the call for listening to our second-quarter results conference call. Our next call is scheduled for October 18 when we will discuss our third quarter 2012 results. Thank you again.

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