Hayward Holdings Inc (HAYW) Q4 2024 Earnings Call Highlights: Strong Sales Growth and Margin ...

• Net Sales (Q4 2024): Increased 17% to $327 million.
• Net Sales (Full Year 2024): Increased 6% to $1.052 billion.
• Gross Profit Margin (Q4 2024): Expanded 220 basis points to 51.4%.
• Gross Profit Margin (Full Year 2024): Increased to 50.5%.
• Adjusted EBITDA (Q4 2024): Increased 30% with a margin of 30.2%.
• Adjusted EBITDA (Full Year 2024): Increased 12% to $277 million with a margin of 26.4%.
• Adjusted Diluted EPS (Q4 2024): Increased 35% to $0.27.
• Adjusted Diluted EPS (Full Year 2024): Increased 20% to $0.67.
• Free Cash Flow (Full Year 2024): Increased 22% to $188 million.
• Net Debt to Adjusted EBITDA: Improved to 2.8 times from 3.7 times at the end of 2023.
• North America Net Sales (Q4 2024): Increased 20% to $286 million.
• Europe and Rest of World Net Sales (Q4 2024): Increased 2% to $41 million.
• 2025 Guidance for Net Sales: Expected to increase 1% to 5%.
• 2025 Guidance for Adjusted EBITDA: Expected to be $280 million to $290 million.

• Warning! GuruFocus has detected 5 Warning Signs with GBTG.

Release Date: February 27, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Hayward Holdings Inc (NYSE:HAYW) reported strong fourth-quarter results, significantly exceeding expectations with a 17% increase in net sales.
• Gross profit margins expanded to a record 51.4% in the fourth quarter, contributing to a 30% increase in adjusted EBITDA.
• The company achieved a 22% increase in full-year free cash flow, exceeding guidance and enabling early debt repayment and strategic acquisitions.
• Hayward Holdings Inc (NYSE:HAYW) strengthened its leadership team and expanded its technology leadership position with innovative new products.
• The company successfully integrated the ChlorKing acquisition, enhancing its position in the commercial pool market and identifying cross-selling opportunities.

Negative Points

• Despite strong performance, Hayward Holdings Inc (NYSE:HAYW) anticipates only modest sales growth of 1% to 5% for 2025, reflecting a dynamic operating environment.
• The company faces potential challenges from tariffs and evolving supply chain issues, which may necessitate pricing adjustments.
• Europe and Rest of World segments experienced an 8% decline in net sales for the full year, with lower volumes impacting performance.
• The company is cautious about the discretionary elements of the market, such as new construction and remodels, which remain under pressure due to elevated interest rates.
• Hayward Holdings Inc (NYSE:HAYW) anticipates flat EBITDA margins for 2025, despite strong margin performance in 2024, due to ongoing investments and potential cost pressures.

Q & A Highlights

Q: Can you elaborate on the 13% volume growth in North America this quarter and its impact on Q1? A: Eifion Jones, CFO, explained that the 13% volume growth was due to strong in-quarter demand and increased early buy orders. However, a smaller proportion of early buy was shipped in 2024 compared to 2023, setting up a stronger backlog for 2025. Kevin Holleran, CEO, added that hurricane activity also contributed to the strong demand in Q4.

Q: How are tariffs affecting your business, particularly with China, Mexico, and Canada? A: Kevin Holleran, CEO, stated that 85% of North American sales are produced locally, with the rest sourced from China and Europe. The impact of tariffs is being assessed, especially for Tier 2 and Tier 3 components. Eifion Jones, CFO, added that they are prepared to implement price increases to offset any tariff-related costs.

Q: Why does the guidance imply flat EBITDA margins for next year despite strong performance this year? A: Eifion Jones, CFO, noted that while 2024 saw better-than-expected margin growth, the 2025 guidance reflects a pragmatic approach. The focus is on a two-year stack basis, showing strong conversion rates and margin growth over the medium term.

Q: Can you discuss the resilience of the non-discretionary aftermarket and its impact on your guidance? A: Kevin Holleran, CEO, explained that over 80% of revenue comes from the aftermarket, with a significant portion being non-discretionary. Despite pressures on new construction and remodels due to high interest rates, the non-discretionary segment remains resilient and reliable.

Q: What are your expectations for working capital improvements and free cash flow conversion in 2025? A: Eifion Jones, CFO, highlighted focused initiatives on working capital, including inventory and accounts receivable management. The company expects further improvements in cash conversion cycles, contributing to strong free cash flow conversion in 2025.

Q: How is the SKU rationalization initiative progressing, and what impact will it have on margins? A: Eifion Jones, CFO, stated that SKU rationalization is aimed at improving infrastructure quality and working capital efficiency. The initiative, ongoing for 18 months, focuses on promoting technology-based products and rationalizing raw materials, which will be accretive to margins over time.

Q: What are the assumptions for North America versus international growth in the 2025 guidance? A: Kevin Holleran, CEO, mentioned that North America is expected to see higher growth compared to Europe and Rest of World, with a 1% contribution from the ChlorKing acquisition. Eifion Jones, CFO, added that FX headwinds will be more pronounced in Europe and Rest of World.

Q: How does the warranty period affect replacement opportunities for products sold during the pandemic? A: Kevin Holleran, CEO, explained that most products have a three-year warranty, with some online SKUs having a one-year warranty. As products sold during the pandemic start coming off warranty, replacement opportunities are expected to increase in the coming years.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.