Residential swimming pool manufacturer Latham (NASDAQ:SWIM) reported Q2 CY2024 results topping analysts' expectations, with revenue down 9.6% year on year to $160.1 million. The company's full-year revenue guidance of $510 million at the midpoint also came in slightly above analysts' estimates. It made a GAAP profit of $0.11 per share, improving from its profit of $0.05 per share in the same quarter last year.
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Latham (SWIM) Q2 CY2024 Highlights:
- Revenue: $160.1 million vs analyst estimates of $156.7 million (2.2% beat)
- EPS: $0.11 vs analyst estimates of $0.01 ($0.10 beat)
- The company slightly lifted its revenue guidance for the full year from $505 million to $510 million at the midpoint
- Gross Margin (GAAP): 33.1%, up from 28.4% in the same quarter last year
- Adjusted EBITDA Margin: 21.5%, up from 17.5% in the same quarter last year
- Free Cash Flow of $47.94 million is up from -$39.86 million in the previous quarter
- Market Capitalization: $373.9 million
Commenting on the results, Scott Rajeski, President and CEO, said, “This was another quarter of strong execution, in which we drove substantial increases in profitability, while managing through difficult industry conditions and supporting future growth initiatives. Margin expansion was a key highlight of our second quarter performance, reflecting our improved cost structure and the impact of production efficiencies resulting from lean manufacturing and value engineering programs, ongoing cost containment, and lower raw material costs."
Started as a family business, Latham (NASDAQ:SWIM) is a global designer and manufacturer of in-ground residential swimming pools and related products.
Leisure Products
Leisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.
Sales Growth
A company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Regrettably, Latham's sales grew at a mediocre 13.4% compounded annual growth rate over the last four years. This shows it couldn't expand in any major way and is a tough starting point for our analysis. 
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Latham's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 13.6% annually.
This quarter, Latham's revenue fell 9.6% year on year to $160.1 million but beat Wall Street's estimates by 2.2%. Looking ahead, Wall Street expects revenue to decline 2.6% over the next 12 months.
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Cash Is King
If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Latham has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company's free cash flow margin averaged 10.2% over the last two years, slightly better than the broader consumer discretionary sector.
Latham's free cash flow clocked in at $47.94 million in Q2, equivalent to a 29.9% margin. This quarter's result was good as its margin was 8.9 percentage points higher than in the same quarter last year, but we wouldn't put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.
Over the next year, analysts predict Latham's cash conversion will fall to break even. Their consensus estimates imply its free cash flow margin of 15% for the last 12 months will decrease by 15.6 percentage points.
Key Takeaways from Latham's Q2 Results
It was good to see Latham beat past analysts' revenue and EPS expectations this quarter. We were also glad it raised its full-year revenue guidance, which came in higher than Wall Street's estimates. Overall, we think this was a really good quarter that should please shareholders. The stock traded up 36% to $4.21 immediately after reporting.
Latham may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.