Q1 2022 SiteOne Landscape Supply Inc Earnings Call
Greetings and welcome to the St. One landscape supply first quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
This conference is being recorded I would now like to turn the conference over to your host Mr. John Guthrie Executive Vice President and Chief Financial Officer for site, one landscape supply.
You may begin.
Thank you and good morning, everyone. We issued our first quarter 2022 earnings press release, this morning, and posted a slide presentation to the Investor relations portion of our website at investors <unk>, one dot com.
I'm joined today by Doug Black, our chairman and Chief Executive Officer, and Scott Salmon Executive Vice President strategy and development.
Before we begin I would like to remind everyone that today's press release slide presentation and the statements made during this call include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission.
Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance.
A reconciliation of these measures can be found in our earnings release and in the slide presentation.
I would now like to turn the call over to Doug Black.
Thank you John .
Good morning, and thank you for joining us today.
Following an exceptional year in 2021 with record sales growth and profitability.
And considering the tremendous first quarter that we had last year with 32% organic daily sales growth.
We were very pleased to see our momentum continue as we build on these games in 2022.
With 17% organic daily sales growth, 24% overall sales growth and.
And improved profitability during the first quarter, we're off to another excellent start this year.
We are encouraged by the continued healthy underlying demand.
With our strong teams.
<unk> capabilities, and our robust pipeline of potential acquisitions.
We are confident that 2022 will be another great year of performance and growth for say one.
I will start today's call with a brief overview of our unique market position and our strategy for long term performance and growth.
Followed by some highlights from the quarter.
John Guthrie will then walk you through our first quarter financial results in more detail.
And provide an update on our balance sheet and liquidity position.
Scott Salmon will discuss our acquisition strategy and then I will come back to address our latest outlook for 2022 before taking your questions.
As shown on slide four of the earnings presentation, we have grown our footprint to more than 600 branches and four distribution centers across 45 U S States and six Canadian provinces.
We are the clear industry leader over five times the size of our nearest competitor yet.
We estimate that we only have about a 15% share of the very fragmented 23 billion wholesale landscaping products distribution market.
Accordingly, our future growth opportunity is significant.
We have a balanced mix of business with 64% focused on maintenance repair and upgrade.
1% focused on new residential construction.
And 15% are new commercial and recreational construction.
As the only national full product line wholesale distributor in the market.
We also have an excellent spread across our product lines and geographically.
Our strategy to fill in our product lines across the U S and Canada, both organically and through acquisition strengthens and reinforces this balance over time.
Overall, our balanced end market mix.
<unk> product portfolio and good geographic coverage gives us multiple avenues to grow and more ways to create value for our customers and suppliers, while providing important resiliency in softer markets.
Turning to slide five it is important to understand that since becoming an independent company in 2014.
Our vision at site, one has been to build a true company of excellence.
The one that creates tremendous value for our five key stakeholders.
Our associates customers suppliers shareholders and our communities.
We have made tremendous progress so far but feel that we still have a long way to go in achieving this vision.
As we continue our quest for excellence, we take a long term view staying very focused on our five key vision objectives, which are to create.
Create a great place to work for all our associates.
Deliver superior value to our customers, causing them to be successful.
Be the distributor of choice for our suppliers.
Achieved excellent performance and growth for our shareholders and be a good neighbor and our communities by helping the less fortunate around us and having a positive impact on our environment.
These objectives drive the culture that we're creating that site won a culture of teamwork and excellence.
Nearly being stronger together with our key stakeholders.
These objectives also keep us grounded and focused on what is important through the ups and downs of the market and in the world.
We are very proud of the tremendous company that we're building and our progress on these objectives are detailed in our 2021 ESG report, which is available on our website.
As shown on slide six our strategy is to leverage the scale resources functional talent and capabilities that we have as the largest company in our industry.
All in support of our talented experienced and entrepreneurial local teams to consistently deliver more value than our competitors to our customers and suppliers.
We've come a long way and build insight one and executing our strategy over the last six years.
We are still in the third or fourth inning of our overall development as a truly world class company.
Accordingly, we remain highly focused on our commercial and operational initiatives to further build our capabilities and improve the value that we deliver to customers and suppliers.
These initiatives are complemented by our acquisition strategy, which fills in our product portfolio.
Leaves us into new geographic markets and adds terrific new talent to Saint Laurent.
Taken altogether, our strategy creates superior value for our shareholders through organic growth acquisition growth.
And EBITDA margin expansion.
If you turn to slide seven you can see that our strategy is working as we have delivered consistent organic growth strong acquisition growth and excellent EBITDA margin expansion over the last six years.
Note that we have done this while investing heavily in our teams and in new systems and technologies to build the foundation for <unk> and to create superior capabilities for our customers and suppliers.
We remain confident in our ability to gain market share and continued driving all three of our value creation levers going forward.
You will also note that we have now completed 67 acquisitions across the irrigation agronomics nursery and Hardscape and landscape supplies product lines. During the last eight years with three completed so far in 2022.
We only acquire well run companies and so all of these acquisitions were already high performing companies before joining <unk>.
After they join US we together enjoy the benefits of our combined commercial and operational capabilities.
Acquisitions are also a key source of new talent and ideas and therefore, they enhance our competitive advantage as we grow.
Our acquisition pipeline remains very robust and we have significant potential to continue growing through acquisition for many years to come.
Slide eight shows the long runway that we have ahead and filling in our product portfolio, which we aim to do primarily through acquisition, especially in the nursery and hardscape and landscape supplies categories.
We are well networked with the best companies in our industry and expect to continue filling in these markets systematically over the next decade.
I will now discuss some of our first quarter performance highlights are shown on slide nine.
We achieved 24% net sales growth in the first quarter with 17% organic daily sales growth and 7% net sales growth added through acquisition.
The organic daily sales growth was driven by 20% price realization, partially offset by a 3% volume decline.
We were particularly pleased with the sales growth achieved this quarter as it came against a difficult comparison of 32% organic daily sales growth during the first quarter of 2021, which was primarily volume growth.
We were also pleased that the growth was broadly based across product lines and geographic markets and customer segments, reflecting the healthy underlying end markets.
Finally, we believe that we are continuing to gain market share across all product lines.
Gross margin improved 240 basis points to 33, 4% from the first quarter as we continue to benefit from proactive inventory management during this high inflation period.
As a reminder, we expect the full year gross margin to be lower in 2022 than in 2021 due to the difficult prior year comparisons in the third and fourth quarter.
We now believe that inflation might be more persistent in the second half, which could lessen the full year drop in gross margin.
We will also continue to execute our initiatives with private label products and small customers to fortify our gross margin performance for 2022.
On the SG&A side, our operational initiatives and disciplined cost management offset our increased investments in marketing and digital to yield good operating leverage for the quarter.
Accordingly, SG&A as a percent of net sales decreased by 100 basis points to 28, 6%.
We continue to benefit from the deployment of our new technologies like mobile pro which allows mobile branch transactions.
And from our transportation management system, or Tms, which helps reduce freight cost, while improving delivery timeliness and accuracy.
Going forward, we will continue to leverage new technologies to improve the customer experience and increase our operating leverage.
The combination of strong organic sales.
Excellent gross margin improvement and good contribution from acquisitions allowed us to deliver adjusted EBITDA growth of 97% for the quarter and expand adjusted EBITDA margin by 310 basis points to eight 4%.
A terrific start to 2022.
On the acquisition front, we added three high performing companies to our family so far this year.
All of which provide us with excellent new talent and capability for growth in their respective markets.
While adding approximately $50 million and trailing 12 months sales to Taiwan.
Our development teams remain very active in 2022, and we expect to continue adding strong companies to cite one in the coming months.
With an experienced and recently expanded team.
Broad and deep relationships with the best companies.
Our strong balance sheet and an exceptional reputation.
We remain well positioned to grow consistently through acquisition this year and for many years to come.
In summary, we are off to a terrific start and has significant momentum across site one in building our teams executing our initiatives.
<unk> value to our customers and suppliers, adding new companies and achieving excellent performance and growth.
With solid underlying markets, we remain confident in our ability to deliver a winning year in 2022.
Now John will walk you through the quarter in more detail John .
Thanks, Doug I'll begin on slide 10, with some highlights from our first quarter results.
We reported a net sales increase of 24% to $805 million in the quarter.
There were 65 selling days this quarter, which is consistent with the prior year period.
Organic daily sales increased by 17% during the quarter driven by continued demand for landscape supplies and price inflation in response to rising product costs.
Acquisitions continued to perform well contributing approximately $43 million or 7% to our first quarter net sales growth.
Scott will provide more details regarding our acquisition strategy later in the call.
We were pleased with our organic daily sales growth this quarter, given the 32% comp from the prior year and the slow start to the spring due to colder and wetter weather in northern markets.
Organic daily sales growth for our three northern markets was 13% compared to 23% or six markets in the south and west.
Organic daily sales for landscaping products, which includes irrigation nursery escape outdoor lighting and landscape accessories increased 20% for the quarter due to price inflation and strong demand from both the new construction and repair and remodel end markets.
Organic daily sales for agronomic products, which includes fertilizer control products ice melt and equipment increased 10%, reflecting price inflation and solid demand due to the stay at home trend, partially offset by the slow start to the spring selling season.
In addition, agronomic sales were negatively impacted by lower sales through the retail home Center channel as we did not repeat the initial stocking sales of our <unk> product at Lowe's that occurred in the first quarter of last year.
This reduced organic sales for agronomic products by 8% and overall organic daily sales by 2%.
As stated earlier price inflation continues to play a major role in the organic daily sales growth for both landscaping products and agronomic products as prices for products like fertilizer grass seed and PVC pipe remain at record level.
Price inflation contributed approximately 20% to organic daily sales growth this quarter.
We expect prices to be elevated throughout 2022 and price inflation to be the primary contributor of organic daily sales growth during the year.
However, we expect price inflation impact on organic daily sales growth to decrease as we move through the year and start Comping some of last year's price increases.
In addition, going into the year, we thought we might see price reductions in the second half for some of the most volatile product like fertilizer and PVC pipe.
Given the increased supply chain uncertainty due in part to the war in Ukraine. We are less optimistic we will see that price relief this year.
Gross profit increased 34% to $269 million for the first quarter and gross margin increased 240 basis points to 33, 4%.
Similar to recent quarters, our gross margin was positively impacted by price realization and supply chain initiatives, including strategic buys of inventory ahead of supplier cost increases.
As disclosed on our Q4 2021 earnings call, we expect a modest gross margin reduction in 2022, as our gross margin improvement initiatives, such as private label and small customer growth or more than offset by the loss of the price realization benefit that we experienced in the second half of <unk>.
Last year.
Selling general and administrative expense or SG&A increased 20% to $231 million for the first quarter due to additional operating expenses supporting our sales growth as well as contributions from acquisitions.
SG&A as a percentage of net sales decreased 100 basis points to 28, 6%.
The reduction in SG&A as a percentage of net sales reflects operating leverage resulting from our strong organic sales growth combined with effective cost management.
For the first quarter, we recorded an income tax expense of $4 6 million compared to an income tax benefit of $2 5 million in the prior year period.
The effective tax rate increased to 12, 5% primarily due to an increase in net income before taxes, partially offset by an increase in the amount of excess tax benefits from stock based compensation.
We recognized $5 million of excess tax benefits for the three months ended April <unk> 2022, compared to $3 7 million for the three months ended April four 2021.
We recorded net income for the first quarter of $32 3 million compared to $7 4 million for the prior year period.
The improvement was primarily driven by our strong sales growth gross margin improvement and SG&A leverage.
Our weighted average diluted share count was $45 9 million compared to $45 7 million for the prior year period.
Adjusted EBITDA increased by 97% to $67 8 million for the first quarter compared to $34 5 million for the same period in the prior year.
Adjusted EBITDA margin, reflecting our SBA leverage and gross margin improvement increased 310 basis points to eight 4%.
Now I'd like to provide a brief update on our balance sheet and cash flow statement as shown on slide 11.
Net working capital at the end of the first quarter was $788 million compared to $539 million at the end of the same prior year period.
The increase in net working capital is primarily attributable to higher receivables, resulting from our strong sales growth and an increase in inventory due to supply chain uncertainty cost inflation and strategic purchases ahead of cost increases from our suppliers.
Cash used in operations during the first quarter was $118 million compared to 46 million for the prior year period the.
The increase was primarily due to the increase in working capital, we made cash investments of $41 million for the quarter compared to 46 million for the same quarter last year. The decrease reflects slightly less acquisition investment during the quarter.
Net debt at the end of the quarter was approximately $417 million compared to 355 billion at the end of the prior year period.
Leverage at the end of the first quarter decreased to 0.9 times, our trailing 12 months adjusted EBITDA compared to one two times at the end of the first quarter of 2021, the lower elaborate reflects our improved profitability our target net debt to adjusted EBITDA leverage range at the end of the year is 1% to three times.
At the end of the quarter, we had liquidity of $243 million, which consisted of $45 million of cash and approximately $198 million and available capacity under our ABL facility.
In summary, our priority from a balance sheet perspective is to maintain our financial strength and flexibility without sacrificing long term growth our market opportunity.
I will now turn the call over to Scott for an update on our acquisition strategy.
Thanks, John as shown on Slide 12, we acquired one company during the first quarter and two companies in April bringing our total to three for 2022 with a combined trailing 12 month net sales of approximately $50 million.
Since 2014, we have acquired 67 companies with approximately $1 $3 billion in trailing 12 month net sales added to cite one.
Turning to slide 13 through 15, you will find information on our most recent acquisitions.
On March 18th we acquired J K enterprise landscape supply with seven locations focused on providing bulk and bags landscape supplies and hardscape to the northern Virginia, and Maryland markets.
This acquisition complements our prior acquisition of another regional Hardscape leader Sterling Centre of Virginia.
On April 22nd we acquired Bell stone masonry supply with a single location, serving the Fort worth Texas market.
Bell stone distribute hardscape and bulk landscape supplies and builds upon our December 2020 acquisition of Alpine materials, which also supplies hardscape products.
On April 28, we acquired preferred seat a leading supplier of agronomics products to landscape contractors in upstate New York with one location in Buffalo.
These acquisitions add terrific talent to cite one and move us forward toward our goal of providing a full line of landscape products and services to our customers in all major U S and Canadian markets.
Summarizing on slide 16, our acquisition strategy continues to create significant value for site one.
Our robust pipeline is expanding across all lines of business and geographies, giving us confidence that we will add more outstanding companies to cite one throughout 2022.
We have a very deep and experienced team in terms of bringing companies into site, one and an exceptional reputation for being a great home for landscape distribution entrepreneurs and their teams.
We also has several advantages as the market leader, 100% focused on landscape distribution with almost 60, former owners and leadership roles.
Risks and down to Earth culture, and tremendous functional and technological capabilities to support the growth of companies who join us.
All of these factors allow us to achieve a high percentage of negotiated sales and give us the edge and competitive acquisition situations.
We believe these advantages are formidable and sustainable and will enable us to continue successfully executing our acquisition strategy in the coming years.
I want to thank the entire site one team for their passion and commitment and welcoming the newly acquired teams. When they joined site won their leadership and efforts are the key to our long term success and building site one.
I'll now turn the call back to Doug.
Thanks Scott.
Wrap up on slide 17.
We have good momentum moving into our busy spring selling season.
Underlying demand is healthy and we remain optimistic about the year. Despite the tough comparisons ahead.
As we discussed we now expect prices in the second half of the year to be higher than our prior forecast.
With continued supply chain challenges and solid demand.
Overall, the market should provide a reasonable environment for us to execute our commercial and operational initiatives and drive further growth in sales and profits in 2022.
In terms of markets. We are currently seeing solid demand trends in all our end markets maintenance repair and upgrade and both residential and commercial new construction.
Our contractors remain busy and have strong backlog for 2022, although as mentioned the spring season. Starting later this year due to colder and wetter weather in northern markets.
We also understand that there is a lot of economic uncertainty associated with inflation, but we have not yet seen this translate into meaningfully lower demand.
Furthermore, we expect to gain market share as we deliver higher value to our customers and further execute our customer and product growth strategies, including our marketing and digital initiatives.
Taken altogether, we continue to expect to achieve high single digit organic daily sales growth for the full year 2022.
Mostly driven by price inflation.
Okay.
As mentioned, we also expect our gross margin to decline somewhat this year with less benefit from price realization, partially offset by our gross margin improvement initiatives.
While we will be able to achieve some SG&A leverage we expect our adjusted EBITDA margin to decline modestly in 2022.
In terms of acquisitions as Scott mentioned, we currently have a strong pipeline of high quality companies and look forward to adding more of these to the <unk> family during the year.
Our acquisitions are performing very well and we continue to improve our ability to integrate them into our company.
Accordingly, we expect acquisitions to contribute strongly to our performance and growth in 2022 and the years ahead.
With all of these factors in mind, we are maintaining our expectation for fiscal 2022, adjusted EBITDA guidance to be in the range of $430 million to $450 million.
Which represents year over year growth of 4% to 8%.
This range does not factor any contribution from unannounced acquisitions.
In closing I would like to sincerely. Thank all of our site <unk> Associates, who continue to amaze me with their passion commitment teamwork and selfless service.
We have a tremendous team and it is an honor to be joined with them as we deliver increasing value for all our stakeholders.
I would also like to thank our suppliers for supporting us so strongly and our customers for allowing us to be their partner.
Operator, please open the line for questions.
Thank you.
If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the star keys.
In the interest of time, we ask that each keep to one question and one follow up thank you.
Our first question comes from the line of David Manthey with Baird. Please proceed with your question.
Thank you and good morning.
I was wondering if you could breakout price across agronomics versus landscape products and then in terms of the cadence of growth through the months of the quarter is it right to assume that.
Obviously things were a little bit weaker in March or April does that mean that they were.
They were negative year over year or just slower growth.
Yeah, So I'll take the second half of that and I'll, let John take the first David.
No as we mentioned, it's been colder and wetter.
Spring, so far and especially in the northern markets last year was an especially mild spring and spring started a bit early so we're comping against that so April .
Started out flat, but it has actually progressed through the month, so we've seen growth resume.
And strengthen as the month has developed so we're we're encouraged in what we see the trends, we see and it seems to be just your typical later spring.
We will see how it goes through the rest of the second quarter, but thats. The trend we had seen in April and started out flattish progressed to more strong growth.
In the recent weeks and John you want to pick up the first half of that yes. They were they were both.
Got it.
About our agronomics was about 17% and and and.
Landscaping product.
<unk>.
Would have been a little over 20%.
So from that standpoint, but if there was even within that.
You had quite a bit of variation.
<unk>.
For instance.
Fertilizers, we're probably in the high 20.
<unk>.
And PVC pipe and those where we're above 50%.
So there is.
Those those commodity type products.
That kind of trade.
We're still the primary driver.
If you look at a lot of products, where in the in the I would say.
Hello.
High single digit.
Inflation rates.
Got it Okay, and then second I know gross margin is a moving target.
Last quarter, you were signaling is sort of a 40 to 80 basis point decline for the year.
Just to be clear is that two represent the.
As the inventory gains dissolve when pricing stabilizes as that sure.
Indicating was sort of the magnitude in that or is that number related to inventory gains greater offset by some of the operational positive jaws.
Yes, it's really a factor of both.
The Big we received a lot of.
A benefit from price realization.
Especially in the third and fourth quarters of last year, and we're comping against that.
And that pushed the decline in gross margin, we do have our gross margin initiatives private label small customer, which will will work some of that back.
When we reported it in February we said that gross margin, which was 34, 9% in 2021 was going to be more 34% to 34, 5%.
I think seeing what we see now with with commodities kind of holding up we'd probably be towards the higher end of that that.
That range, if we had to forecast it today.
Yes.
Makes sense. Thank you very much.
Great. Thanks, David.
Thank you. Our next question comes from the line of Stephen Volkmann with Jefferies. Please proceed with your question.
Hi, Good morning, guys. Thanks for taking the question.
Maybe I apologize.
It's a very big picture question, Doug, but obviously.
Obviously, the market has sort of taken a view on anything remotely sort of building products related.
I know you have a lot of experience in different markets and building products. So I'm curious how you think.
If we were to get a slowdown in housing for example that seems to be what people are thinking how do you think that impacts site.
And then sort of related to that obviously interest rates are going up and maybe quite a bit does that impact your business model going forward.
No. Good question, we obviously, we've been through downturns and soft soft periods and strong periods and so we.
We have.
One of our goals at <unk> and what we're kind of proud of is we built a very balanced business. So if you look at our our business mix being a little over.
About 30%, 37% maintenance.
Which is going to hold up well really regardless of the market.
<unk> got a strong repair and remodel and a 27% repair and remodel and repair and remodel if you see a new housing slowdown but.
But jobs are still plentiful and consumer confidence is there that that will hold up.
Quite nicely and one of the trends we have seen is that the.
The DIY part of repair remodel has had a big covered bond and has come back down the professional side was constrained by <unk>.
By Labor, So you've never had the big bump and so you're seeing stronger growth in that do it for me side, which we're benefiting from.
Then you get the parts of our business that are tied to new construction about 36% overall, 21% of Thats housing, 15% of that is commercial and recreational.
And.
If housing slows down a bit but that'll be the part.
That gets affected.
We feel like we've got great initiatives in place that will allow us to swim upstream if you will and gain market share if we're in softer markets.
So we feel like the.
Housing goes down.
Sure.
It will.
<unk>, our organic growth, but we've got a lot of levers to pull and a balanced business. So we'll be able to continue to March forward and do okay in terms of our strategy.
And our profitability going forward. So that's what we see in housing today.
We don't see a slowdown yet.
So, but certainly interest rates are going up housing prices are up.
Like everybody else, we're watching but for now the builders are building in our contractors are busy so we'll see how it goes this year.
Great. That's helpful and does do higher rates makes Scott's job tougher just a higher cost of capital and hurdle rates et cetera.
No I mean, Scott can comment but.
Owners are driven by a myriad of reasons when they sell their companies and we've got a strong balance sheet.
We're out there talking to all of them. So they are ready to sell we're going to buy.
But interest rate movements, and those kind of things don't don't tend to affect that.
I appreciate it.
Yeah.
Thank you.
Thank you. Our next question comes from the line of Ryan Merkel with William Blair. Please proceed with your question.
Yes.
Thanks, Good morning, and congrats on the quarter.
Wanted to ask about the comment on customer backlogs remaining strong. So I'm just curious how how far our people booked out and is this commentary tied to new construction or is it also to remodel.
It's really tied to I'll start with commercial the commercial backlog backlogs are the longest they tend to be nine to 12 months out.
Bigger projects et cetera.
When it comes to new home, our new home construction.
Youre typically in more kind of three to six months a backlog of customers that are tied to builders. They know what to build their schedule is.
And so they're tied to that repair remodel can can vary right you have some folks that would.
Would work off a three month backlog really in today's market in the last couple of years, a lot of repair remodel folks booked up for nine to 12 months, which is historically the case.
With the strong demand and the lack of labor has been the case so if.
The average that together you're probably at four.
Four months of.
Our backlog and so what we're hearing from our customers is hey, a lot of them see the rest of the year.
And then you have a backlog for the rest of the year.
Theres always some.
On that note the commercial folks are booked hooked up and so net net.
There seems to be work both for the spring season, and the fall season for.
For 2022, where we don't have a lot of visibility into is is 23 right because most of the backlog run out before you before you go into next year.
Got it that's helpful. Okay, and then I wanted to ask a question on price what do you expect for price now in 'twenty, two and just clarify is the higher price included in guidance or not included in guidance.
We went into the year kind of.
Our forecast for the year was.
And we're maintaining that was high single digit organic growth with the majority of that being price. So you know eight or 9%.
If you will.
Type of price for the full year, obviously, we expected it.
To be very elevated in the first quarter and then seek weak sequentially decrease as we go throughout the year.
As we've talked about.
Certain manufacturers are suppliers to us putting in price increases now, but a lot of what drove price increases really especially in the second half of the year the prices.
<unk> rose at that time, and they are kind of being maintained at these elevated levels currently.
In General we think this will probably be the high watermark.
And this was supposed to narrow guidance for price for the year and then sequentially go down.
As we go throughout the rest of the year being in single digits likely in the fourth quarter.
Obviously, a lot of great uncertainty with regards to that right, yes, I would just add I think.
We're obviously theres a lot of uncertainty.
The pricing if it stays elevated if we're correct now versus our forecast would give us some upside, but we have not.
You will kind of factored that in.
Just because we feel like theirs.
A lot of uncertainty and the weather, although although we think the weather is manageable now.
We can't forget that last year was a very good weather here actually both in the spring and the fall so we've probably baked in a little downside.
On weather on volume.
To balance that it's early in the year.
And so were shy to change any guidance just based on.
Smallish versus first quarter.
Makes sense, thanks, I'll pass it on.
Thank you. Our next question comes from the line of Keith Hughes with <unk> Securities. Please proceed with your question.
Thank you low longer term question here on slide eight you talk about all the Msas that you are not in.
Hardscape nursery or both I guess my question is for Scott when you're looking to purchase or do acquisitions of Hardscape and nursery is it more difficult to.
To buy those types of businesses then.
<unk> sprinkler pipe.
Wires and things like that and was there anything different about acquisitions there.
I wouldn't say, it's any more difficult.
We have a very strong pipeline across all the lines of business.
And there are certainly willing sellers I think in all of them.
But I don't see any fundamental difference in terms of the difficulties or hurdles.
Acquiring across any of our lines of business.
The one thing I would add to that.
Got it.
The one thing I would add to that is that they're very fragment hardscape and nursery are extremely fragmented.
And more fragmented than agronomics irrigation so.
They are not more.
<unk>, but youre going to have to do more deals with you agree Scott to fill in when we.
Acquire.
In irrigation company, they often have.
15 to 20 locations et cetera, hardscape tend to be single or a couple of locations. So it's.
Which is good for US right, we're used to doing lots of acquisitions, it's our strength in bringing on lots of small companies, but the hardscape and nursery would be more fragmented, which just means there's more deals to be done in order to fill that in.
Absolutely yeah irrigation agronomics are more mature in terms of their consolidation.
Okay, great. Thank you.
Okay.
Thank you. Our next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.
Good morning, everyone. Thank you for taking the questions.
I wanted to ask on demand and weather.
You said that sort of a slower start to the spring selling season attributed to weather just kind of wanted to unpack that a little bit is any kind of detail or quantification on what you think the impact may have been.
Or maybe trends in sort of the non seasonal markets.
Lines and enter into the spring might be the best way to explain that.
Because obviously what I'm trying to get at is your is your confidence that it's not you know some broader signal around underlying demand. Thank you.
Yeah.
I think.
Best way to look at that is if you split the kind of the northern markets versus the southern markets.
So.
We saw organic growth I.
I think a 23% in the south and western markets and only 13% in the northern market. So these are the markets that are that are slowing.
That really impacted that haven't really hit this spring.
Also add that.
Up until kind of the March where the spring hits.
Hum, we were actually doing EBIT even stronger.
<unk> and <unk>.
Sales and volume.
March slowed down a little bit.
As Doug mentioned and its been escalating since then.
As spring it fit so we've seen we feel as if we haven't isolated to those specific markets.
With regards to it and are optimistic about the next quarter.
Got you that's really helpful. John Thank you for that.
And secondly on on SG&A I guess just to the extent that the makeup of your full year growth guidance is maybe shifted to a little more price inflation and a little less volume.
If that's the case would we expect to see some sort of greater leveraging of SG&A or maybe reduced SG&A dollar spending versus what we had previously thought thank you.
I think we're still we're expecting SG&A leverage this year and so I think obviously prices are positive too that I think that was.
Thats kind of reflected in our original guidance.
Obviously, we're still investing in the business.
And are our largest cost is our people and obviously, we're seeing some pressure there as everybody in the market is with regard to.
Labor cost.
So what we're still looks still expecting SG&A elaborate and that was kind of I think our outlook for the year is still kind of salt Lake as.
As we are managing it.
Great. Thanks, Jon Thanks, Doug.
Thank you. Thank you.
Our next question comes from the line of Mike Dahl with RBC capital markets. Please proceed with your question.
Good morning, Thanks for taking my questions.
First question is a follow up on.
Some of the comments around what you are.
Seeing and watching and I'm curious is there anything that youre seeing in either.
Average purchase size or product mix.
That would give you any early indication of a sign.
Kind of shifting.
And the underlying customer environment.
Whether whether you are on iron ore.
The other types of things that you would be <unk>.
Looking for.
As far as those early indicators.
Right, well, we havent seen any fundamental shifts in product lines.
Again, you do have you have product lines that are tied to new construction repair remodel maintenance, obviously, but are the lines have been strong right across those so no real trend there.
Quite frankly, we watch we talk to our customers we talked to our.
They are the best gauge.
And again, we feel good and that we also have our own project services group, which does commercial bidding.
And so we keep track of that.
What they are bidding activity.
It's kind of like the Abi index, if you will for us.
Yes.
They have shown growth this year so.
Our main ways, we don't have any.
Tricks in forecasting better than anybody else so our main ways of.
Keeping keeping our air to ground is talking with customers keeping track of what work they've got coming down.
That seems good.
Our product lines and moving that seems good and our project services business.
Growing so all indications are that we'll have.
A good year this year.
And we'll see how it goes.
Okay that helps thanks, and my second question is back to kind of the the.
The cycle question on appreciating that.
And most normal times your business is going to be less cyclical than many other things that would probably fall in this space I am curious.
This cycle.
A little unique in terms of the pricing dynamics, if you look by the end of.
This year Youll, probably have benefited from the cumulative at least 20% pricing a lot of that being driven by.
Some of the commodity products, you mentioned PVC or John mentioned PVC up 50%. This quarter. So just does the do the dynamics around pricing over the last two years potentially increase the sensitivity of growth in earnings.
If we were to see a slowdown compared to.
Maybe prior times.
You know, we're we're always building off of our.
Our last year right.
Last year pricing.
Pricing was high I think it was.
11%, but we had 11% volume growth right, so shouldn't forget that the fundamentals.
The business are very strong and so.
John My comment, but we don't think that the pricing as inflation comes back into where it normally would be for this industry.
Which is 2% to 3%.
We can continue to build and move forward.
In that environment.
Commodities.
If they came off war you might have flattish inflation, where you've got the other products going up at a normal rate and your commodities down you might end up but we've had years before where we had no inflation.
And we're able to still.
Improve our gross margin it.
SG&A leverage and drive forward so.
Certainly.
We feel like we can continue to grow and drive forward.
Even as inflation comes back.
And we hope we hope it does come back to normal so that we can get.
Getting into more kind of <unk>.
Stable.
The environment for the long term, but.
John anything to add to that.
I think you hit on the hit on the key points I guess, the one point I would say.
There is about 80% of our business is I would call it.
<unk> wallet.
It was a fish inflation component there is only about 20% of our business that is highly I would call that we repriced regularly.
From that from that component and that's what we're constantly managing tube and and and operating.
And we just kind of we build that into the business.
We will adapt accordingly.
Okay. Thanks, Doug Thanks, Sean.
Thank you. Our next question comes from the line of Jeff Stevenson with loop capital markets. Please proceed with your question.
Hey, Thanks for taking my questions today, and congrats on the strong quarter.
Thank you. So have you seen any improvement with material availability and any product categories. Since the start of the year any.
Any more color on which products are in short supply and which have been approved would be helpful.
So I think the environment, it's about the same as it's been.
<unk>.
Over the last couple of years.
We still have <unk>.
Products and each product category that are in tight supply.
And they have to do with specific raw materials.
Urea or preferred lives are et cetera.
Or they could be electronic components that make it difficult for our irrigation providers to provide controllers. So.
And it's here and there across product lines.
We have a terrific supply chain team, we have four major Dcs.
And we have over 600 locations. So we have a huge strength.
In terms of being able to anticipate those.
Make sure that we've got inventory.
And smooth.
<unk> products for sale.
And to some extent those disruptions.
Help us in that our competitors run out of product and we've got the product and we can we can gain market share so and that continues to be the case as John has mentioned our inventories are elevated and.
That's a strategic decision for us to make sure. We're in stock of products that we're going to need to have that we think might be tight so.
Again, we're navigating through.
There is no.
If you take one product line, it's not the whole product line is just select products here and there.
That are tied to kind of global markets.
That that are in tight supply and it really hasnt changed we think it's going to continue to be.
Challenging through this year and then we will see how it moves out.
The world conflicts, we hope and pray that they.
And those risks go away, but.
Certainly we cant count on that.
No that's helpful and just expanding on that you mentioned the share gains you've seen against share a smaller regional competitors due in part to industry material availability challenges are.
Are you expecting a similar pace of share gains that you saw last year or is there some moderation baked into your guidance.
No we feel like we can continue to gain share I think on the supply side I think a lot of our competitors have adjusted as well. So we probably don't have the advantage now that we had two years ago in that but we've got other capabilities that we've been building and working on.
In terms of the.
The technologies, we have for our teams how we fortified our teams.
Bilingual branches, our marketing prowess that we now have to go out and find the small customers. So we have other capabilities that are kicking in that we feel confident will allow us to continue to.
To gain market share.
Great. Thank you.
Thank you.
Thank you. It appears we have no additional questions ill pass the floor back to management for closing remarks.
Okay, great well. Thank you all for joining US today, we certainly appreciate your interest in <unk>.
Look forward to speaking with you again in the next quarter I would like to once again, thank our tremendous associates for all they do for us our customers for allowing us to be their partner and our suppliers for supporting us so well.
Again, we look forward to talking to you again in August .
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time, we thank you for your participation.
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