2023-03-30 11:32:44 ET
Summary
- Hayward Holdings reported its Q4 and full year 2022 financial results on February 28, 2023.
- The firm manufactures and sells pool equipment and related solutions worldwide.
- HAYW has produced contracting revenue and management expects it will continue to contract in 2023.
- I'm on Hold for HAYW in the near term.
A Quick Take On Hayward Holdings
Hayward Holdings ( HAYW ) reported its Q4 2022 financial results on February 28, 2023, missing revenue and EPS consensus estimates.
The firm manufactures and sells pool and spa equipment and related automation solutions.
Given ongoing macroeconomic and geopolitical risks, a continued revenue drop in 2023, my negative DCF, and a partial offset by a robust share repurchase program, my outlook on HAYW for the near term is on Hold.
Company
Berkeley Heights, New Jersey-based Hayward was founded to provide pool maintenance products and more recently Internet of Things enabled software and service capabilities.
Management is headed by president and CEO Kevin Holleran, who has been with the firm since 2019 and was previously president and CEO of the Industrial Segment of Textron.
The company’s primary offerings include:
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Pool Heaters
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Pumps
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Automatic Cleaners
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Lighting
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Water Care
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Internet of Things Automation
The firm sells its products to industry for inclusion in new pool construction and in the aftermarket.
Net sales have been divided as 75% aftermarket versus 25% new pool construction.
A large majority of the company's net sales come from North America, with a minority coming from Europe and the rest of the world.
Hayward’s market & Competition
According to a 2017 market research report by Market Research, the global pool equipment and maintenance market was forecast to exceed $17 billion by 2022.
This represented a forecast CAGR of 10.8% from 2016 to 2022.
The main drivers for this expected growth were an increase in discretionary income, construction of new pools and a growing travel and tourism industry.
Since the pandemic, the travel and tourism industry element of this growth forecast has been severely reduced, only recently beginning to show signs of growth as consumers restart their travel activities.
Also, the residential sector will likely produce the greatest growth by product segment.
By region, North America will remain the largest market through 2022 and likely well beyond.
Major competitive or other industry participants include:
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Pentair (PNR)
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Zodiac
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Maytronics
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Fluidra (FLUIF)
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Waterco
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Laswim Pool and SPA Equipment
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Aqua Industrial
The four states of California, Texas, Florida and Arizona have a higher concentration of competitors.
Hayward’s Recent Financial Results
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Total revenue by quarter has fallen markedly in recent quarters:
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Gross profit margin by quarter has also dropped:
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Selling, G&A expenses as a percentage of total revenue by quarter have risen recently, a negative sign:
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Operating income by quarter has dropped materially:
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Earnings per share (Diluted) have remained positive:
(All data in the above charts is GAAP)
In the past 12 months, HAYW’s stock price has fallen 32% vs. that of Pentair’s slide of 0.5%, as the chart indicates below:
As to its Q4 2022 financial results, total revenue fell 26.5% year-over-year and gross profit margin dropped 4.7%.
SG&A as a percentage of total revenue continued to rise while operating income dropped further, as did earnings per share.
For the balance sheet, the firm ended the quarter with $56.2 million in cash and equivalents and approximately $1.1 billion in total debt.
Over the trailing twelve months, free cash flow was $86.3 million, of which capital expenditures accounted for $29.6 million. The company paid $7.9 million in stock-based compensation in the last four quarters.
Valuation And Other Metrics For Hayward Holdings
Below is a table of relevant capitalization and valuation figures for the company:
Measure [TTM] | Amount |
Enterprise Value / Sales | 2.7 |
Enterprise Value / EBITDA | 9.9 |
Price / Sales | 1.9 |
Revenue Growth Rate | -6.3% |
Net Income Margin | 13.7% |
GAAP EBITDA % | 26.7% |
Market Capitalization | $2,360,000,000 |
Enterprise Value | $3,480,000,000 |
Operating Cash Flow | $115,940,000 |
Earnings Per Share (Fully Diluted) | $0.77 |
(Source - Seeking Alpha)
Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:
Assuming generous DCF parameters, the firm’s shares would be valued at approximately $7.49 versus the current price of $11.30, indicating they are potentially currently overvalued, with the given earnings, growth, and discount rate assumptions of the DCF.
As a reference, a relevant partial public comparable would be Pentair; shown below is a comparison of their primary valuation metrics:
Metric [TTM] | Pentair | Hayward Holdings | Variance |
Enterprise Value / Sales | 2.7 | 2.7 | -2.2% |
Enterprise Value / EBITDA | 13.5 | 9.9 | -26.5% |
Revenue Growth Rate | 9.5% | -6.3% | --% |
Net Income Margin | 11.7% | 13.7% | 17.0% |
Operating Cash Flow | $363,300,000 | $115,940,000 | -68.1% |
(Source - Seeking Alpha)
Future Prospects For Hayward
In its last earnings call (Source - Seeking Alpha), covering Q4 2022’s results, management highlighted a further reduction in sales for 2023 and a likely return to more typical seasonality.
However, the company is seeing improved pricing which is offsetting inflation, but will experience softer conditions in Europe and Canada.
Notably, management believes that the firm has ‘captured significant market share over the last three years,’ and thinks this development is ‘more structural than transitory.’
Looking ahead, the company still has $400 million of share buybacks authorized for its existing three-year share repurchase program, which should help to provide a floor for the stock over an extended period of time.
However, for the full year of 2023, management expects a further 20% drop in revenue at the midpoint of the range.
Adjusted EBITDA is expected to be $275 million at the midpoint, although it doesn’t include stock-based compensation and one-time items.
Regarding valuation, given generous assumptions, my discounted cash flow calculation suggests that HAYW may still have further to drop.
The primary risk to the company’s outlook is further softness in ex-USA regions for a variety of reasons.
Given ongoing macroeconomic and geopolitical risks, a continued revenue drop in 2023, my negative DCF, and a partial offset by a robust share repurchase program, my outlook on HAYW for the near term is on Hold.
For further details see:
Hayward Holdings Contends With Continued Revenue Contraction In 2023