Pool equipment and automation systems manufacturer Hayward Holdings (NYSE:HAYW) announced better-than-expected revenue in Q4 CY2024, with sales up 17.5% year on year to $327.1 million. The company expects the full year’s revenue to be around $1.08 billion, close to analysts’ estimates. Its non-GAAP profit of $0.27 per share was 14.4% above analysts’ consensus estimates.
Revenue: $327.1 million vs analyst estimates of $303.6 million (17.5% year-on-year growth, 7.7% beat)
Adjusted EPS: $0.27 vs analyst estimates of $0.24 (14.4% beat)
Adjusted EBITDA: $98.7 million vs analyst estimates of $87.07 million (30.2% margin, 13.4% beat)
Management’s revenue guidance for the upcoming financial year 2025 is $1.08 billion at the midpoint, in line with analyst expectations and implying 2.7% growth (vs 5.6% in FY2024)
EBITDA guidance for the upcoming financial year 2025 is $285 million at the midpoint, below analyst estimates of $287.3 million
Operating Margin: 23.4%, up from 19.9% in the same quarter last year
Free Cash Flow was -$70.43 million compared to -$40.77 million in the same quarter last year
Market Capitalization: $3.10 billion
Company Overview
Credited with introducing the first variable-speed pool pump, Hayward (NYSE:HAYW) makes residential and commercial pool equipment and accessories.
Home Construction Materials
Traditionally, home construction materials companies have built economic moats with expertise in specialized areas, brand recognition, and strong relationships with contractors. More recently, advances to address labor availability and job site productivity have spurred innovation that is driving incremental demand. However, these companies are at the whim of residential construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of home construction materials companies.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Hayward’s sales grew at a mediocre 7.5% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.
Hayward Quarterly Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Hayward’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 10.5% annually.
Hayward Year-On-Year Revenue Growth
This quarter, Hayward reported year-on-year revenue growth of 17.5%, and its $327.1 million of revenue exceeded Wall Street’s estimates by 7.7%.
Looking ahead, sell-side analysts expect revenue to grow 2.4% over the next 12 months. While this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.
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Operating Margin
Hayward has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 19.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Hayward’s operating margin rose by 5.6 percentage points over the last five years, as its sales growth gave it immense operating leverage.
Hayward Trailing 12-Month Operating Margin (GAAP)
This quarter, Hayward generated an operating profit margin of 23.4%, up 3.5 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Sadly for Hayward, its EPS declined by 56.6% annually over the last five years while its revenue grew by 7.5%. However, its operating margin actually expanded during this time and it repurchased its shares, telling us the delta came from reduced interest expenses or taxes.
Hayward Trailing 12-Month EPS (Non-GAAP)
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For Hayward, its two-year annual EPS declines of 17.1% show it’s still underperforming. These results were bad no matter how you slice the data.
In Q4, Hayward reported EPS at $0.27, up from $0.20 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Hayward’s full-year EPS of $0.67 to grow 9.4%.
Key Takeaways from Hayward’s Q4 Results
We were impressed by how significantly Hayward blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. On the other hand, its full-year EBITDA guidance slightly missed. Still, we think this was still a solid quarter with some key areas of upside. The stock traded up 4% to $14.96 immediately following the results.
