POOL
#Sure.
Going back to California, California started off from a winter standpoint, and you live in California so you know this firsthand.
California started the year with very mild winter, so it started off with a very strong start to the season, but then they had cooler-than-normal temperatures particu<UNK>rly in May and June.
And what that does is basically water ---+ the chemicals don't burn off the water as much so therefore you need less chemicals to maintain the water properly sanitized, so that really impacted our business.
But then it reverted back to normalized weather in the third quarter in California from a temperature standpoint and, therefore, chemical sales picked up back to normal.
So nothing from a competitive standpoint unique or different.
It was mainly due to little shifts of weather; not little, but the shifts of weather from period to period versus normal.
In terms of California and El Nino, all the expectations for next year, the first expectation or the first hope is that the increased rainfall is in fact retained in California and not shift into the Pacific Ocean as California tends to do with a lot of its rainfall every year.
So that's hope number one and, therefore, they do a better job of managing the water they do get naturally.
If that's the case, how that impacts our business, well ---+ and again, these are offsets.
Water tends to unba<UNK>nce the water, the pool water.
On the other hand, the cooler temperatures means that you burn off less chlorine, so those two wash off against each other.
When you talk about more rainfall in California, this is not like what happened in Texas this year or what happens in Florida every year when you may be receiving 10 inches of rain in a month.
California may go through 10 inches of rain in a year and that would be a great thing for California.
So, therefore, you don't have the issues of really affecting the water temps that much or the water unstabling that much.
Net-net it's going to affect our business.
And just like this year, it may affect is positively a little bit one quarter, hurt us a little bit in the other quarter, but when I look at the entire year for California net-net I'm not expecting any big swings one way or the other from an El Nino impact.
And then in terms of Texas, Texas really we lost a couple of months or really our sales were down for those couple of months year on year, very unusual.
Picked back up to normal as soon as the rains went away.
And we did get that, in essence, value back in Northeast, Midwest, and Canadian markets with a little bit extended season.
(<UNK>ughter) Well, 20 years is a long time.
But, you know what, those that still hold on to their shares 20 years from now I think will be very richly rewarded.
Well, I think it's better, <UNK>, if you look at things from a year-to-date standpoint or quarter on quarter is the same thing.
What you've seen is in our history, up until 2006, you saw a gradual increase of our operating margins year on year as we continue to invest in people, technology, tools, etc.
Therefore, become progressively more efficient in providing our value to the customers and our suppliers and doing that more efficiently.
So that pattern continued steadily until 2006.
2007 through 2009 ---+.
By the way, our operating margins were 8.8% in 2006.
Which was a previous peak.
Previous peak on that.
Therefore, what happened is 2007 to 2009 you saw a significant reduction, basically 80% reduction, in new pool construction in the United States as well as close to a 40% reduction in rep<UNK>cement activity, the more somewhat discretionary areas.
Huge hits which affected us adversely in our structure, but the way we look and manage our business is longer term, so we didn't make any short-term decisions or short-sighted decisions.
We continued to make investments as we needed to and we took a hit knowing we took a hit in 2007, 2008, 2009 where our margins contracted given the industry impact on the reduced new pool construction and reduced rep<UNK>cement and remodeling activity.
Beginning in 2010 that was really more of a transition year, but after 2010 you have seen a gradual recovery of remodeling and rep<UNK>cement activity.
You have seen very little recovery overall in terms of new pool construction over that period time, but you've seen more consistent recovery on the rep<UNK>cement and remodeling activity.
So, therefore, the industry has begun to recover; still 70% less new pools being built this year than were built back in 2005.
But through that we continue to invest, continue to get better, continue to carry market share and continue to gain efficiencies in how we do our business.
So you've seen a constant, gradual process of recovery and increase in operating margins really following along the same patterns that we had from our genesis in 1994 through 2006.
Sure.
Puts and takes, well, we've got 2.5 months left to go.
We have certain expectations on sales; that could be plus or minus a little bit.
Gross margins, again our assumptions are basically f<UNK>t for the quarter, but that could be plus or minus 10, 20 bps depending on mix of products primarily.
So those are the two biggest factors.
Not anything to speak of on the expense side.
So that's really the main factors.
Anything else, <UNK>, that you can think of.
Just a reminder, this time of year we're really talking about Southern market, year-round markets and the Northern markets really shutdown.
Weather becomes important in those markets.
If El Nino should hit sometime next week, next month, whatever that would obviously have an impact given the overweighting of the Southern market business to our results.
Net $0.05 is a comfortable range, given the fact that we've got 2.5 months left to go.
Sure.
Currently ---+ again some states <UNK>g in their reporting; we see the bigger states on a monthly basis.
Overall, we're still looking at 60,000 to 65,000 pools for the year domestically and then for next year we're expecting that to improve a little bit, probably to the tune of 65,000 to 70,000 for next year.
Again, it pales in comparison to the 215,000, 220,000 that the industry did back in 2005.
But I think here what we are looking at is the <UNK>ck of a robust recovery in single-family home construction, particu<UNK>rly the medium to upper end of single-family home construction.
We have seen new home construction recover in the multifamily side, which is really not reflective of the environment that would prompt people to put a pool in their existing homes.
So I think until such time as you see a real recovery of the single-family homes, particu<UNK>rly on the mid to upper end of single-family homes, you won't have the environment for a really robust recovery where we could see 15,000, 20,000 more pools built a year.
Again, we are waiting for that to happen.
We are anticipating that will happen.
We have been ---+ it's a little <UNK>ter than we would've expected it to happen at this juncture, but nonetheless we are still plugging along and gaining share and building out our services and tools so we can compensate for that.
I think there are two factors here.
Certainly the psychological impact of home values declining is one since they were viewed as ---+ homes were viewed as the ideal and most important investments for most households and had a pattern of never going down since World War II.
So I think that is important and certainly a factor.
I think the other factor is, given what happened economically and the shock that our system had back in 2008/2009, you have had people deferring basically getting married, deferring having children.
So all those factors I think is a postponement of what will, in theory, take p<UNK>ce; it will just take p<UNK>ce <UNK>ter.
Again, a generation ago people were getting married an average four or five years earlier than they are in this current generation.
So I think that's just ---+ that deferral is all part of the process and I think that generational change, coupled with the psychological change, I think those are the two that are causing this de<UNK>y in terms of homeownership and young people's desire to invest in homes.
They would be up like 2% to 3% both in the quarter and year to date.
And then if you take out California, it would be humming along just like the blue business at the 8% type range.
First of all, understanding criteria.
Criteria is entering markets that we are currently not in.
Certainly there's more open space or green space in our green business, given that we are basically only covering about half of the Sun Belt.
So that is certainly something that we continue to look at.
There are very few pockets like that on the blue side of the business domestically.
There are some pockets internationally, but again we were very deliberate as to the markets and how we enter those markets there.
So that's one.
The other factor is where we have a weaker share we look at it as well; the criteria is a little different than what we have no presence whatsoever.
So those are the two.
It's not going to be a big part of our business.
When you look at ---+ from our transaction standpoint, in the <UNK>st 10 years, I think after 2005, 2006 to 2015, probably our sales contribution from acquisitions averaged probably no more than 1% of total sales per year with a negligible contribution of any bottom line.
So it's a form, a way for us to enter the market.
We compare that always with opening up our new locations and, in fact, we have probably done more in terms of new locations over the 10-year period than we have in terms of acquisitions.
And again, those are more resource intensive; sometimes more challenging than doing more of the same.
So our first bias is always growing more of the same and then looking at what else we can sell to existing customers.
An example of that would be building materials and then after that then we get into new markets because the return on capital and the risk profile, the resource intensity is greater in those areas, so therefore we have to ba<UNK>nce the whole equation.
Thank you, Kate, and thank you all for listening.
Again, we have had a very good 20 years.
Some of us in the Company were disappointed that we were ninth in terms of 20-year return; okay that we were in the top 1%, but still we were ninth so we have eight more to go.
Hopefully we will be there at the next mark in five years.
Our next earnings call is scheduled for February 18, when we will discuss our full-year 2015 results.
Have a great day, thank you.
