SiteOne Landscape Supply, Inc. Q3 FY2024 earnings call

• Market headwinds included commodity price deflation, reduced repair/upgrade demand, and hurricane impacts. Achieved 2% sales volume growth offsetting 3% price decline and 7% growth from acquisitions. - Gross margin improved 10 basis points due to acquisitions, but base business gross margin down 50 basis points. - Initiatives include increasing sales to small customers, growing private label brands, improving inbound freight costs, increasing bilingual branches, enhancing sales force productivity with CRM, and making progress with Pioneer integration. - Plan to consolidate or close 16 branches in Q4 to strengthen operations.

During the third quarter, SiteOne experienced significant market headwinds. Sales volume grew 2% partially offsetting a 3% price decline, with 7% sales growth from acquisitions. Net sales for the quarter were $1.21 billion, with acquisition sales contributing approximately $77 million or 7% to net sales growth. Gross profit increased 6% to $411 million, with gross margin improving 10 basis points to 34% due to acquisitions, but base business gross margin was down ~50 basis points. Adjusted EBITDA decreased 4% year-over-year to $114.8 million, with adjusted EBITDA margin declining 100 basis points to 9.5%.

• Challenging headwinds expected to continue in Q4, including Hurricane Milton, dampening full-year results. - Full-year 2024 adjusted EBITDA expected to be in the range of $370 million to $380 million, including a ~$5 million charge for branch consolidations. - Expect commodity prices to normalize and a more stable pricing environment in 2025, with improved performance and growth anticipated next year.

• Market headwinds including commodity price deflation, reduced repair/upgrade demand, and hurricane impacts negatively affecting sales growth, gross margin, etc. - Pioneer acquisition currently underperforming, diluting adjusted EBITDA margin. - Potential impact of future hurricanes on sales and operations.

Q: Can we view 3Q and 4Q organic sales as signs of stabilization and market share gains?

A: Yes, it's a bit of both; seeing more consistent market share gains while repair/remodel market remains weak.

Q: Can you elaborate on growth enhancement going forward?

A: Expect EBITDA growth to enhance as price realization recovers, Pioneer turns around, and focus branches improve, driving EBITDA margin expansion.

Q: Is the branch closure a one-off or ongoing?

A: It's a catch-up to get the network right, with ongoing consolidation to follow.

Q: Why are onetime restructuring charges in adjusted EBITDA?

A: Treated as per guidelines, as they pertain to base business and not recent acquisitions.

Q: Is Pioneer still negatively impacting EBITDA?

A: It's a very low contributor, measurably diluting overall EBITDA return on sales.

Q: Thoughts on end market dynamics in 2025?

A: Too early to call, but customers and suppliers are optimistic with many moving parts.

Q: Supplier pricing next year?

A: Expect modest inflation on non-commodity products from manufacturers.

Q: Gross margin decline details?

A: Majority due to price cost relationship with inventory, and mix of agronomic vs. landscaping volumes had some impact but not significant.

Q: R&R bidding activity and interest rates?

A: No improvement in R&R bidding, softness related to interest rates; expect rebound if rates drop.

Q: Maintenance volume tailwinds into 2025?

A: Pent-up demand in remodel market, maintenance volume steady with seed price dynamics.