Pool Corporation (POOL) Q2 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to the Pool Corp. Second Quarter Earnings Conference Call. [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 management's outlook for 2012 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. Well, it was a very interesting quarter, as the yearly 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 installed 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 adjustment as retail replenishment declined, and we finished June with 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 3 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 base 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 macroeconomic 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 outperformance 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, where certain competitors irrationally selling products at prices that only serve 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 a comprehensive suite of services and solutions to help our customers succeed. These programs helped 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 constructions. 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 people's commitment to our customers is unsurpassed. I am truly grateful for their efforts to provide exceptional value every day, and I'm very proud of their accomplishments. Now, I'll turn the call back over to Mark for his financial commentary.

Thank you, Manny. I'll start with a couple of comments on our 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 our 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 continued to demonstrate good working capital management, with net receivables up just 2% year-over-year and inventories up 3% including receivables and inventories from acquisitions. Our receivables continued to trend positively as reflected by day sales outstanding, or DSO, of 29.3 days this year compared to 30.7 days a year ago. The low growth in 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 midyear inventory buy in 2011, which increased inventories and reduced payables last year, so the year-over-year improvement needs to be tampered 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 that's measured using a trailing-12-month debt basis, dropped to 1.66 from 1.75 last year. Let me know 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'll turn the call over to our operator, and we'll begin our question-and-answer period. Emily?

[Operator Instructions] And our first question will come from David Mandell of William Blair.

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 in our -- during the season in a regular basis. And are probably a little bit quicker 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 that inventory and that's why there were a little bit more aggressive than normal in discounting their pricing.

All right. 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've seen to date, it probably is a little light. And certainly, there was, I would say at least $10 million to $15 million, it 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 pull 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, that -- 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 the -- a 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 -- in our discussion, but June this year was, on average, cooler than June last year. And if we look at that by state, there's a very strong correlation in terms of our state-by-state performance in terms of sales versus this year's June-versus-June weather.

Our next question comes from Luke Junk of Robert W. Baird. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: First question would be just to touch on the incentive comp accrual, Mark, I know you've referenced that obviously there was an adjustment to that this quarter as the growth slowed. Just curious that if you look to the second half of the year and thinking about modeling SG&A, is it possible that we could see some, sort of, catch up freed up to accrue at a higher rate in the second half, if things got better? Or do you guys just look at that as the problem to have if the whole business is getting better?

Yes, I mean, the -- 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.

And overall, given that difference, similar to what we've seen this year is, on a base business level, net-net expenses to be essentially flat, maybe modestly down. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: Okay, that's helpful. And then within that, looking at base 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 presented as kind of the 5% to 8% growth range. Thinking about what that means for contribution margins and what you're doing at the base business growth, are we still looking at 20% contribution margins or above 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 6 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's 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, currency was a 1% benefit in the first half of the year, and this year is a 1% hit. So -- I mean, and in fact, another factoid is that, last year, there -- our sales were, in the second quarter, up 8% and change, I think it was 8.3%, including a 1% currency benefit. And this year, they're 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. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: 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 that some unfavorable changes in customer mix is one of the headwinds in the addition of 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, the -- probably the biggest factor in the quarter is that we did not have the opportunity buy -- that we had last year with the 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's probably number one factor. Some noise about competition, particularly in June, as -- try to rationalize some inventories on the part of competitors. And then the third factor, and the least significant factor of the 3, would be the customer mix. And in that regard is -- 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 because nondiscretionary items, as you can well imagine, are modestly higher gross margin than discretionary items. That's really the cause for that, it's more driven by the pull forward. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: And then just one more quick one if I could. In terms of the demand side, I know Manny, in your prepared remarks, you've mentioned some improvement in some of these more discretionary expenditures? Could 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 in the first quarter or we're seeing a little more traction on these types of things?

Well, there's 2 parts 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 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 perspective, in the peak back in 2005, 2006, that was over 200,000 pools -- in-ground polls built in a year. So it's getting very depressed, 70-plus percent versus peak years. And the other question, well, if real estate is stabilizing why hasn't that have an impact? And as I communicated in the past, they -- we believe that will have an impact, it will be a lagging impact of 1 to 2 years later because the 2 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 we 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, 2010.

Our next question comes from David McGregor of Longbow Research.

You cited, amongst your growth drivers of sales, price inflation. I was wondering if could just talk a little bit about that. And if there's any way to quantify that, that will be helpful as well.

Sure. Price inflation, 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 on the lines of 1% to 2% for the year.

Okay. And the second question, just with respect to the irrigation business. I know you've cited that the business that you can primarily buy new home construction. But I'm wondering 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 pieces 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 would be -- there'll be greater need for that landscaping and lawns and everything else to be watered in a much more efficient fashion than it's 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 about a major reaction, there's a 2-month drought, now we're going to put in an irrigation, that's more of a longer-term reaction.

Our next question comes from David Mann of Johnson Rice. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: A few questions. First of all, can you clarify, in terms of June and July, the map could suggest that you're running negative base business then, is that the case?

No. In June, we're basically a flat base business, on a daily sales rate basis. And in July, we are very modestly positive. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: 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're now thinking Q3 will be below -- Q3, Q4 will be below that 5% lower end?

No, it could -- no, it could very well be below 5% lower end. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: Okay, that's helpful. In terms of gross margin, I think on the last call, Mark talked about Q2, Q3, Q4 being somewhat flattish maybe in a little bit positive gross margin. Mark, could you give an update on how we should think about second half gross margin compares?

Yes. Well, I think I mentioned that, that was -- our expectation was for a flat to positive, although I -- throughout the caveat, that we had very difficult comps given the midyear price increases on 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. And so our expectation at this point would be -- we're probably not going to get to the positive side that we were looking for. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: And is part of that due to the -- going back to, I think, the first question on the call that you're still seeing some pricing pressure as some of that inventory, excess from your competitors, is being cleared?

Yes, I'd say that the -- a 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 kind of like the order we had, at least, in the press release. And again that's some inventory rebalancing and things of that nature taking place, as some people look to convert inventory to cash. So I mean -- and when you look at this, you're talking about very, very spot cases in different markets here and there. And could be a 20 bps impact? Sure. It's not significant in the overall scheme of things, it's not like there's a mass sell-off or anything. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: Understood. In terms of uses of cash this quarter, with the return of cash to shareholders, that were buyback. I was looking back, it's not typical that you're buying stock in the second quarter as much. Does that say something about what you're seeing on acquisition opportunities or is there still a robust pipeline there?

There is still a robust pipeline. But when we're 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 the regular CapEx. So that's basically the situation we're in, and we're in a very comfortable debt-to-EBITDA position, that 1.6 in change Mark referenced. So we like to stay at a 1.5x to 2x debt-to-EBITDA and the fact that we're 1.6 in change after buying back 40-plus million shares -- $44 million worth of shares year-to-date is kind of indicative of our cash flows. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: One last question. I think you're 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're looking at opening a location in Columbia that is targeted for the back -- for the latter part of the year so that really won't play into this year at all. And we opened up a location last year in the spring in Puerto Rico -- in Puerto Rico which is coming along very well this year.

Our next question comes from Anthony Lebiedzinski of Sidoti & Company. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Just a follow-up on the competitive pricing pressures now, which markets -- 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 case because that could lead back to -- I'd prefer that to be kept as a general comment, although obviously, it's not everywhere. Probably the most footballed item, ironically, is chemicals, and that makes frankly no sense because consumers aren't going to buy anymore chemicals because they're priced enough. A 25-pump bucket is $3 less, so it doesn't do anything for demand. But when you're a little bit heavy on inventory and you want to move some stuff, it's 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. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Got it, okay. And as far as the back half of the year, can you just touch on -- I know -- I think 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 base business sales growth?

Sure. Two things, one is, again, we're looking to finish the year with a 5% to 8% rate, and currency fuels that plus or minus a percent but 5% to 8% is the range, kind of putting currency on the side. And we do have one less sales day in the third quarter, and the same number of sales days in 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 divide it by 60-plus change. So therefore -- we're going to be looking at -- in the third quarter, I'd say a low to mid single-digit but probably 2% to 4% type pipe number for the third quarter. And again, part of that is the fact that you're taking off 1.5% for that lost sales day. And then the fourth quarter would be a more normal, closer to mid-single digits. And overall for the year, again, falling in squarely in the 5% to 8%. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Okay, that's helpful. And I know you've commented on the pool construction. So just curious, what kind of trend are you seeing? I know the big scheme of things, it's not as nearly as big, but just overall, your above-ground pools, so what are you 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's still extremely depressed, probably finished the year 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 pools, which is much more of an impulse item more weighted towards the northern part of the country, and Canada, that has had -- no, we've 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's 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 impacted weather and our service improvements have both contributed to our double-digit sales growth in above-ground pools.

Our next question comes from Keith Hughes of Suntrust.

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

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

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

There's 2 ways to cut it, frankly, we could probably decipher it if we dug long enough. I look at it in aggregate by individual product component. So whether it's 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 in 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 it all at one time but most do it in pieces. So therefore, the costs 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.

A final question on chemical prices. Are you starting to see chemical prices loosen or fall in the last month or two?

Yes, we have some, but we have seen some competitors that are pulling prices that are, frankly, don't make any sense but they just, kind of, 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 producers themselves, it's just more your -- some of your competitors?

Yes. Yes. Yes.

[Operator Instructions] And our next question comes from Brent Rakers of Wunderlich Securities.

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

You know what? I don't have it at all, sorry. Mark has it here. We have Q2 chemicals -- and Q2 chemicals, overall, were up 4.3% in terms of sales growth. And that's after factoring in the fact that they were down in June. Year-to-date, as I mentioned, they were up 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 2 quarters?

We don't have equipment in aggregate, we have equipment by individual category. And just to 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 [ph] one of the months, equipment behaved a lot better than chemicals, overall.

Okay. And then -- great. I think, earlier in the call, you also gave some data for California, Florida and Texas. And I think the range of growth in the quarter, I think, was 3.8% to 5.4%, and I -- when you -- Manny, when you look at those markets, I guess when I view them as fairly nonseasonal markets 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 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 3 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. And I -- you may have talked around this, but a lot of the premise over the next several years is that there'll be this initial recovery in some of this deferred equipment and other related spending, and then ultimately, you'll get the recovery in new construction, can you maybe talk through -- give us a little clearer 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 or 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 5 to 7 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 most ripe for replacement and remodeling activity. So those 2 factors, the aging of the installed base coupled with gradual recovery of consumer behavior to normalized levels, we believe are going to be a very -- provide us a little bit of a tailwind overall over the next 5 to 7 years in that -- 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, 5 years of decline, we believe that, 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 if that begins to happen, that will begin to contribute to a recovery of new pool construction to more normalized levels. But in that particular case, as we incorporate in our investor presentation and the like, we believe that, that's going to have a later impact and being 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, '13, '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 and repair type expenditures or sales and expenditures on the part of our -- of the consumer. That's going to grow at a modest rate, we're going to grow faster than that because we always take share as we provide more value and do that better for the customers, that's a very rational thing, it's part of our legacy and our history given the investments we've made. But the part 2 of that is we'll have tailwinds given first, driven by the replacement remodeling and then later on primarily driven by new pool construction.

This concludes our question-and-answer session. I would 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'll discuss our third quarter 2012 results. Thank you again.

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