Q4 2024 SiteOne Landscape Supply Inc Earnings Call
Speaker Change: Greetings and welcome to the SiteOne Landscape Supply, Inc. fourth quarter 2024 earnings call. At this time all participants are in a listen-only mode.
Speaker Change: A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Guthrie, Executive Vice President and Chief Financial Officer.
Speaker Change: I'm joined today by Doug Black, our Chairman and Chief Executive Officer, and Scott Salmon, Executive Vice President, Strategy and Development.
Speaker Change: 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.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Speaker Change: Such risks and uncertainties include the factors set forth in the earnings release and in our filing with the Securities and Exchange Commission.
Speaker Change: 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.
Doug Black: I would now like to turn the call over to Doug Black.
Doug Black: Thanks, John. Good morning and thank you for joining us today.
Doug Black: We were pleased to finish a challenging year in 2024 with positive momentum as we achieved 1% organic daily sales growth in the fourth quarter against a 3% price deflation headwind.
Doug Black: a negative 1% in the third quarter of 2024 as price deflation moderates and as our commercial and operational initiatives drive increasing sales volume growth.
Doug Black: Coupled with the strong cost reduction actions that we took in the second half of 2024, include 22 consolidations and closures.
Doug Black: and with Pioneer fully integrated, we enter 2025 in a good position to drive positive daily organic sales growth and solid operating leverage.
Doug Black: We also added seven excellent companies to SiteOne in 2024, with $200 million in trailing 12-month revenue.
and recently added our first acquisition of 2025 in January.
Doug Black: All of these companies have talented teams and strong customer relationships, and we expect them to contribute to our performance and growth in 2025 and beyond in their respective markets.
Doug Black: As we move into 2025, we are seeing price deflation continue to normalize.
Doug Black: as price decreases in products like PVC pipe are offset by price increases in our other product lines.
We are also seeing steady demand in our end markets.
Doug Black: So, the overall macro environment remains uncertain due to a number of factors that include interest rates, potential tariffs, and labor supply.
Doug Black: taken all together with stronger teams, a more cost-effective branch network, momentum with our commercial and operational initiatives, and a robust pipeline of potential acquisitions.
Doug Black: We feel confident in our ability to achieve solid performance and growth in 2025.
Doug Black: and to continue building SiteOne to deliver strong, long-term value for our shareholders.
Doug Black: I will start today's call with a brief review of our unique market position and our strategy.
followed by some highlights from 2024.
Doug Black: Don Guthrie will then walk you through our fourth quarter and full year financial results in more detail and provide an update on our balance sheet and liquidity position.
Speaker Change: will discuss our acquisition strategy, and then I will come back to address our outlook and guidance.
for 2025 before taking your questions.
Speaker Change: As shown on slide 4 of the earnings presentation, we have a strong footprint of more than 690 branches and four distribution centers across 45 U.S. states, and more than 1,000 U.S. states.
and six Canadian provinces.
Speaker Change: We are the clear industry leader over three times the size of our nearest competitor and larger than two through ten combined Yet we estimate that we only have about an 18 percent share of the very fragmented 25 billion wholesale landscaping products distribution market
Speaker Change: Accordingly, our long-term opportunity to grow and gain market share remains significant.
We have a balanced mix of business.
with 55% focused on maintenance, repair and upgrade.
Speaker Change: 21% focused on new residential construction and 14% on new commercial and recreational construction.
Speaker Change: As the only national full product line wholesale distributor in the market, we also have an excellent balance across our product lines as well as geographically.
Speaker Change: Our strategy to fill in our product lines across the U.S. and Canada, both organically and through acquisition, further strengthens this balance over time.
Speaker Change: Overall, our end market mix, broad product portfolio, and geographic coverage offer us multiple avenues to grow and create value for our customers and suppliers.
while providing important resiliency in softer markets.
Speaker Change: Turning to slide 5, our strategy is to leverage the scale, resources, functional talent, and capabilities that we have as the largest company in our industry.
Speaker Change: All in support of our talented, experienced, and entrepreneurial local teams.
to consistently deliver superior value to our customers and suppliers.
Speaker Change: We've come a long way in building SiteOne and executing our strategy, but we have more work to do as we develop into a truly world-class company.
the current challenging market conditions.
require us to adopt new processes and technologies faster.
Speaker Change: and to be even more intentional in driving organic growth, improving our productivity, and mastering the unique aspects of each of our product lines.
Speaker Change: Accordingly, we remain highly focused on our commercial and operational initiatives.
Speaker Change: to overcome the near-term headwinds, but more importantly, to build a long-term competitive advantage for all our stakeholders.
Speaker Change: These initiatives are complemented by our acquisition strategy which fills in our product portfolio, moves us into new geographic markets, and adds terrific new talent to SiteOne.
Speaker Change: Taken all together, our strategy creates superior value for our shareholders through organic growth, acquisition growth, and EBITDA margin expansion.
Speaker Change: On slide 6, you can see our strong track record of performance and growth over the last 8 years.
with Consistent Organic and Acquisition Growth.
Speaker Change: From an adjusted EBITDA margin perspective, we benefited from extraordinary price realization due to rapid inflation in commodity products.
during 2021 and 2022.
Speaker Change: In 2023 and 2024, we experienced significant headwinds as those commodity prices have come down.
Speaker Change: In 2024, we also experienced further adjusted EVDA dilution from the acquisition of Pioneer.
a large turnaround opportunity with great strategic fit.
Speaker Change: and from our other focus branches as a result of the post-COVID market headwinds.
We expect to experience less commodity price deflation in 2025.
Speaker Change: which will be offset with modest price increases in most of our products.
Speaker Change: And with progress on our focus branches, we expect to achieve significant performance improvement in 2025.
Speaker Change: We believe that we have consistently outperformed the market in terms of organic sales volume growth in 2023 and 2024
Speaker Change: And we continue to have ample opportunities to drive sales growth, increase our gross margin, and improve our operating leverage through our commercial and operational initiatives.
Speaker Change: In summary, we expect our earnings growth going forward to be enhanced with steady adjusted EBITDA margin expansion.
as we recover from the post-COVID headwinds.
and drive forward for our longer-term objectives.
Speaker Change: We now have completed 99 acquisitions across all product lines since the start of 2014.
Speaker Change: Our pipeline of potential deals remains robust, and we expect to continue adding and integrating more companies in 2025 to support our growth.
Speaker Change: These companies strengthen SiteOne with excellent talent and new ideas for performance and growth.
Speaker Change: Given the fragmented nature of our industry and our modest market share, we have a significant opportunity to continue growing through acquisition for many years to come.
Speaker Change: Slide seven shows the long runway we have ahead in filling in our product portfolio, which we aim to do primarily through acquisition.
especially in the nursery, hardscapes, and landscape supplies categories.
Speaker Change: We are well connected with the best companies in our industry.
Speaker Change: I expect to continue filling in these markets systematically over the next decade.
Speaker Change: I will now discuss some of our full-year 2024 performance highlights.
as shown on slide 8.
We achieved 6% net sales growth in 2024.
Speaker Change: with an organic daily sales decline of 1%, offset by 7% growth due to acquisitions.
Speaker Change: Organic sales volume grew 2% during the year as our teams continue to gain market share and softer market conditions.
Sales volume improved throughout the year.
Speaker Change: with 0%, 2%, and 4% volume growth achieved during the 2nd, 3rd, and 4th quarters of 2024, respectively.
Speaker Change: We believe that this positive trend reflects a stabilizing repair and upgrade market along with improved execution of our commercial initiatives.
Speaker Change: Pricing declined 3% in 2024, driven primarily by double-digit declines in PVC pipe and grass seed.
Speaker Change: Well, the prices of most of our other products remain flat but the prior year.
Speaker Change: We expect the rate of commodity price deflation to moderate in 2025.
Speaker Change: and balance with modest price increases in most other products, creating a more stable pricing environment.
Gross profit increased 5% driven by our acquisitions.
Speaker Change: And our gross margin decreased by 30 basis points to 34.4%.
Speaker Change: Our base business gross margin was down approximately 50 basis points as lower price realization more than offset gains from our gross margin improvement initiatives.
Our acquisitions, which were primarily nursery and hardscape businesses.
Speaker Change: operate at a higher gross margin, but also operate with higher SG&A.
Speaker Change: Our SG&A as a percent of net sales increased 130 basis points to 30.5% due to our acquisitions.
Speaker Change: SG&A for the base business was flat compared to 2023 as we continue to closely manage our labor and expenses in relation to sales volume.
Speaker Change: In terms of acquisitions, Pioneer represents an ongoing, significant SG&A reduction opportunity.
Speaker Change: as we completed the system integration during the fourth quarter of 2024 and optimized staffing.
Adjusted EBDA in 2024 decreased 8% year over year.
Speaker Change: to 378.2 million. An adjusted EV day margin for the year declined by 120 basis points to 8.3%.
Speaker Change: due to negative organic growth, the absence of price realization, and the dilutive effect of acquisitions.
Speaker Change: As I mentioned after the third quarter, our acquisitions typically perform at a similar adjusted EBDA margin as the base business.
Speaker Change: But with the addition of Pioneer, with approximately $150 million in annual sales, operating well below our adjusted EVDA margin.
Speaker Change: We experienced meaningful adjusted EBDA margin dilution from acquisitions this past year.
Speaker Change: We are confident in our ability to improve the profitability of Pioneer to match the SiteOne average over the coming years.
Speaker Change: In terms of initiatives, we continue to increase sales with our small customers faster than our company average.
Speaker Change: drive growth in our private label brands, and improve inbound freight costs through our transportation management system.
Speaker Change: These initiatives helped to mitigate the gross margin decline that we experienced.
Speaker Change: in 2024, and to contribute to expanding gross margin in the future.
Speaker Change: We continue to increase our percentage of bilingual branches from 58% to 63% in 2024.
Speaker Change: and are executing focused Hispanic marketing programs to create awareness among this important customer segment.
Speaker Change: They're also making great progress in our Salesforce productivity as we leverage our CRM.
Speaker Change: and establish more disciplined revenue-generating habits among our over 600 outside sales associates.
Speaker Change: Continued adoption of MobilePro and DispatchTrack allows us to offer better customer service while increasing the productivity of our branch staff and delivery fleet.
Speaker Change: The acquisition of Pioneer has allowed us to develop new functionality in bulk material delivery and in our point-of-sale system.
which we plan to further leverage with our existing businesses.
while cultivating thousands of new regular users of SiteOne.com.
Speaker Change: The growth in digital sales is encouraging as it increases the connectivity with our customers.
Speaker Change: helping them to be more efficient and helping us increase market share while making our associates more productive. A true win-win.
Speaker Change: Customers who purchase online are growing their total business with SiteOne significantly faster than our company average, thereby contributing to our outperformance of the market.
Speaker Change: ensure that they have the right teams, the right support, and are executing our best practices.
Speaker Change: to bring their performance up to or above the Site 1 average.
as a part of these aggressive efforts.
Speaker Change: We consolidated or closed 22 locations in 2024 to strengthen our operations and better serve our customers at a reduced cost.
Speaker Change: Overall, we expect to gain a meaningful adjusted EBDA margin lift for Site 1 in the coming years.
as we improve the performance of these focus branches.
Speaker Change: Taken all together, we made good progress in 2024 and are continuing to improve our capability to drive organic growth, increase gross margin, and achieve operating leverage through our commercial and operational initiatives.
in 2025 and beyond.
Speaker Change: On the acquisition front, as I mentioned, we added seven excellent companies to our family in 2024, with over $200 million in trailing 12-month sales added to site 1.
Speaker Change: These additions include Devil Mountain, a large, high-performing nursery distributor based in California.
Speaker Change: which provides an exciting new platform for nursery growth in the West.
Speaker Change: With an experienced acquisition team, broad and deep relationships with the best companies, strong balance sheet, and an exceptional reputation, we remain well positioned to grow consistently through acquisition for many years.
Speaker Change: In summary, while we certainly are not pleased with our profitability in 2024,
did a good job of managing through the headwinds.
leveraging our many opportunities for improvement.
and creating strong momentum as we move into 2025.
We are excited about our future.
Speaker Change: as we continue to develop our company and create superior value for our customers, suppliers, and shareholders for the long term.
Speaker Change: Now John will walk you through the quarter and full year in more detail. John?
John Guthrie: Thanks, Doug. I'll begin on slides 9 and 10 with some highlights from our fourth quarter and full year results.
John Guthrie: There were 61 selling days in the fourth quarter and 252 selling days in fiscal year 2024. Both were the same as the prior year period.
John Guthrie: In fiscal year 2025, we will again have 252 selling days, with the selling days the same each quarter as fiscal year 2024.
John Guthrie: Organic daily sales increased 1% in the fourth quarter compared to the prior year, driven by 4% growth in volume, partially offset by 3% price depletion.
John Guthrie: For the full year, organic daily sales decreased 1% due to 3% price deflation, partially offset by 2% volume growth.
John Guthrie: Price deflation continues to be driven by commodity products like PVC pipe which was down approximately 21% in the fourth quarter and grass seed which was down approximately 15%.
John Guthrie: As we communicated on our third quarter call, price deflation is trending in the right direction but stickier than we originally forecast, due primarily to additional price reductions for PBC pipe and grass seed.
John Guthrie: That reflects continued deflation in PVC pipe and grass seed, though not to the magnitude that we experienced in 2024, offset by modest price increases in the rest of the business.
John Guthrie: This outlook does not incorporate the impact of tariffs, which we expect would be passed through by the market in the form of higher prices.
Organic daily sales for agronomic products.
John Guthrie: which includes fertilizer, control products, ice melting equipment, increased 6% for the fourth quarter and 4% for the full year due to strong volume growth resulting from lower prices, solid end market demand, and share gains which more than offset the continued price depletion for products like grass seed.
John Guthrie: In the fourth quarter, we achieved solid sales growth for ice melt and grass eat, despite the pricing headwind.
John Guthrie: as well as Pals Control, where we continue to expand our market presence.
John Guthrie: Organic daily sales for landscaping products, which includes irrigation, nursery, hardscapes, outdoor lining, and landscape accessories, decreased 1% for the fourth quarter due to commodity price deflation.
John Guthrie: For the full year, organic dilly sales for landscaping products decreased 3% due to price depletion and weaker demand in the repair and upgrade end market.
John Guthrie: Geographically, five out of our nine regions achieved positive organic daily cells growth in the fourth quarter.
John Guthrie: We achieved solid growth in northern markets with strong agronomic sales, but experienced a sales decline in southeast markets due to price deflation, tough comps, and the impact of Hurricanes Helene and Milton.
John Guthrie: Acquisition sales, which reflect sales attributable to acquisitions completed in 2023 and 2024, contributed approximately 43 million, or 4%, to net sales growth.
John Guthrie: For fiscal year 2024, acquisition sales contributed approximately $286 million, or 7% to net sales growth.
John Guthrie: Scott will provide more details regarding our acquisition strategy later in the call.
Speaker Change: Gross profit for the fourth quarter was $338 million, which was an increase of 3% compared to the prior year period. Gross margin for the fourth quarter contracted 50 basis points to 33.3% due to higher freight costs, customer discounts, and a negative impact from acquisitions.
Speaker Change: The negative acquisition impact was primarily driven by the Pioneer integration and the consolidation and closure of seven Pioneer locations.
Speaker Change: For fiscal year 2024, gross profit increased 5% and gross margin decreased 30 basis points to 34.4%.
Speaker Change: The decrease in gross margin reflects lower price realization partially offset by the positive impact from acquisitions.
Speaker Change: The increase in both SG&A and SG&A as a percentage of net sales primarily reflects the impact of acquisitions, consolidations, and closures.
Speaker Change: We consolidated or closed 15 locations in the base business and 22 locations in total during the fourth quarter.
Speaker Change: The SG&A impact of closures was approximately 16 million in total, of which approximately 4.5 million is included in our adjusted EBITDA results.
Speaker Change: As a reminder, in most cases with consolidations and closures, we expect to service customers from other branches in the same market and therefore expect to retain the majority of the sales.
Speaker Change: Our base business, SG&A, grew approximately 1% during the quarter, excluding the impact of consolidations and closures.
Speaker Change: For the full year, SG&A increased 10% to approximately $1.4 billion, and SG&A as a percentage of net sales increased 130 basis points to 30.5%.
Speaker Change: The higher SG&A as a percentage of net sales primarily reflects the impact of acquisitions with higher SG&A and the deleveraging resulting from our organic sales decline.
Speaker Change: For the full year, SG&A for the base business was flat compared to the prior year, excluding the impact of branch consolidations and closures.
Speaker Change: Our effective tax rate for fiscal year 2024 was 22.4% compared to 22.3% for fiscal year 2023. The increase in the reported tax rate was primarily due to a decrease in excess tax benefits from stock-based compensation.
Speaker Change: Excess tax benefits of $3.3 million were recognized for the 2024 fiscal year as compared to $5.9 million for the 2023 fiscal year.
Speaker Change: We expect the 2025 fiscal year effective tax rate will be between 25% and 26%, excluding discrete items such as excess tax benefits.
Speaker Change: We recorded a net loss attributable to Site 1 of $21.7 million for the fourth quarter of 2024 compared to a net loss of $3.4 million for the prior year period. The net loss was attributable to our higher SG&A and reduced gross margin.
Speaker Change: Net income attributable to Site 1 for fiscal year 2024 decreased to $123.6 million from $173.4 million in fiscal year 2023 due to the negative impact of deflation and lower price realization.
Speaker Change: Our weighted average diluted share count was $45.6 million for the 2024 fiscal year compared to the 2023 fiscal year diluted share count of $45.7 million.
Speaker Change: Adjusted EBITDA decreased 20% to $31.8 million for the fourth quarter compared to $39.9 million for the prior year period.
Adjusted EBITDA margin contracted 100 basis points to 3.1 percent.
Speaker Change: For the full year, adjusted EBITDA decreased 8 percent to $378.2 million compared to $410.7 million for the 2023 fiscal year.
Speaker Change: Adjusted EBITDA margin decreased 120 basis points to 8.3% for the 2024 fiscal year.
Speaker Change: Adjusted EBITDA includes the adjusted EBITDA attributable to a non-controlling interest of $0.8 million and $2.5 million for the fourth quarter and full year respectively.
Speaker Change: The non-controlling interest rate reflects the 25% share of equity in Devil Mountain retained by its president.
Speaker Change: Working capital at the end of the 2024 fiscal year was approximately $909 million compared to $827 million at the end of the prior year.
Speaker Change: The increase in working capital is primarily due to the additional working capital from acquisition.
Speaker Change: Dash flow from operations increased to approximately $119 million in the fourth quarter compared to approximately $108 million in the prior year period.
Speaker Change: The increase in cash flow from operations primarily reflects improved working capital management.
Speaker Change: Cash flow from operations for the full year was approximately $283 million, compared to approximately $298 million in the prior year.
Speaker Change: The decrease in cash flow from operations primarily reflects a decrease in net income, partially offset by improved working capital management.
Speaker Change: We made cash investments of approximately $37 million for the fourth quarter compared to approximately $17 million for the same period in 2023.
Speaker Change: The increase reflects greater acquisition investment in the fourth quarter of 2024.
Speaker Change: For fiscal year 2024, we made cash investments of $177 million compared to $226 million in fiscal year 2023.
Speaker Change: The decrease reflects less acquisition investment in FY2024 compared to FY2023.
Speaker Change: Capital expenditures for the quarter were approximately $10 million compared to $8 million for the prior year period. Capital expenditures for fiscal year 2024 were approximately $41 million compared to $32 million for fiscal year 2023.
Speaker Change: The increase in fiscal year 2024 capital expenditures reflects increased investment in branch improvements and information technology.
Speaker Change: Net debt at the end of the 2024 fiscal year was approximately $412 million compared to approximately $382 million at the end of the prior year.
Speaker Change: Leverage increased to 1.1 times our trailing 12 months adjusted EBITDA compared to 0.9 times at the end of the prior year. As a reminder, our target year-end net debt to adjusted EBITDA leverage is 1 to 2 times.
Speaker Change: At the end of the year, we had available liquidity of approximately $688 million, which consisted of approximately $170 million cash on hand and approximately $581 million in available capacity under our ABL facility.
Speaker Change: On slide 12, we highlight our balanced approach to capital allocation.
Speaker Change: Our primary goal regarding capital allocation is to invest in our business, including the execution of our acquisition strategy.
Speaker Change: We are also committed to maintaining a conservative balance sheet as demonstrated by our target leverage ratio.
Speaker Change: To the extent we have excess capital after achieving these objectives, the share repurchase authorization provides us the mechanism to return capital to our shareholders.
In fiscal year 2024, we execute our capital allocation strategy.
made $183 million in CapEx and acquisition investments.
Speaker Change: and conservatively maintain leverage at 1.1 times net debt to address the DBITDA.
Speaker Change: This allowed us to complete our sharery purchases of approximately $52 million.
Speaker Change: I will now turn the call over to Scott for an update on our acquisition strategy.
Scott Salmon: Thanks, John. As shown on slide 13, we acquired two companies in the fourth quarter, bringing our total for the year to seven for a combined trailing 12 month net sales of approximately 200 million in 2024.
Scott Salmon: Additionally, we acquired one company subsequent to the end of fiscal year 2024.
Scott Salmon: Since 2014, we have acquired 99 companies with approximately $2 billion in trailing 12-month net sales added to SiteOne.
Scott Salmon: Turning to slides 14 through 16, you will find information on our most recent acquisitions.
Scott Salmon: On December 12th, we acquired Oak Street Wholesale Nursery, a single-location, wholesale distributor of nursery products in Dallas, Texas.
Scott Salmon: The addition of Oak Street makes us the leading wholesale nursery provider in the fast-growing Dallas-Fort Worth market.
Scott Salmon: On December 20th, we acquired Custom Stone, a wholesale distributor of hardscape products with six locations across Texas. The addition of Custom Stone extends our leading hardscape presence in Houston, Austin, and Dallas-Fort Worth.
Scott Salmon: And finally, on January 2nd, Devil Mountain, Site One's majority-owned joint venture, acquired Pacific Nurseries, a single-location wholesale distributor of nursery products in Colna, California.
Scott Salmon: This acquisition improves our capability to serve our customers in the San Francisco Bay Area and extends our leading wholesale nursery presence in California.
Scott Salmon: Summarizing on slide 17, our acquisition strategy continues to create significant value for SiteOne by adding excellent talent and moving 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.
Scott Salmon: With a strong balance sheet and a robust pipeline across all lines of business and geographies, we are confident in our ability to continue adding outstanding companies to SiteOne for years to come.
Doug Black: I want to thank the entire SiteOne team for their passion and commitment to making SiteOne a great place to work, and for welcoming the newly acquired teams when they join the SiteOne family. I will now turn the call back to Doug.
Thanks, Scott. I'll wrap up on slide 18.
Speaker Change: As we move into 2025, there's much macro uncertainty with interest rates, potential tariffs, and labor supply that could affect our markets.
Speaker Change: Against this backdrop, we expect commodity price deflation to continue moderating.
Speaker Change: in 2025 with declines in products like PVC pipe and grass seed.
mitigated by price increases across our other products.
Speaker Change: Overall, we expect prices to be flat, down 1% for the full year 2025.
Speaker Change: In terms of end markets, we expect new residential construction, which comprises 21% of our sales.
to be roughly flat in 2025.
Speaker Change: Continued high interest rates and elevated home values are constraining demand, but with new home inventory being low, builders are continuing to build new homes.
Speaker Change: Accordingly, we expect stable demand for landscaping products in this end market.
Speaker Change: New commercial construction, which represents 14% of our sales, was solid in 2024, and we believe it will remain steady in 2025.
Speaker Change: Leading activity from our project services teams continues to be positive compared to the prior year, which is a good indicator of continued demand.
Speaker Change: Our customer backlogs remain solid, and we believe that the commercial end market will be flat this year.
Speaker Change: The repair and upgrade market, which represents 30% of our sales, was our weakest end market in 2024, with high single-digit volume declines.
Speaker Change: Over the past few quarters we have seen this end market stabilize and we believe that repair and upgrade will be flat to down slightly in 2025.
Speaker Change: Lastly, in the maintenance end market, which represents 35% of our sales,
Speaker Change: We achieved good sales volume growth in 2024 as our teams gained profitable market share.
Speaker Change: We expect the maintenance and market to continue growing steadily in 2025.
Speaker Change: With this backdrop and with the benefit of our commercial initiatives, we expect sales volume to more than offset price deflation.
Speaker Change: We expect gross margin in 2025 to be higher than 2024, driven by our initiatives and the contribution from acquisitions.
Scott Salmon: In terms of acquisitions, as Scott mentioned, we have a good pipeline of high-quality targets.
Scott Salmon: and we expect to add more excellent companies to the SiteOne family during the remainder of the year.
Scott Salmon: All these factors in mind, we expect our full year adjusted EBDA for fiscal 2025 to be in the range of $400 million to $430 million.
Scott Salmon: This range does not factor in any contribution from unannounced acquisitions.
Scott Salmon: In closing, I would like to sincerely thank all our SiteOne associates.
Speaker Change: who continue to amaze me with their passion, commitment, teamwork, and selfless service.
Speaker Change: We have a tremendous team and it is a true honor to be joined with them as we deliver increasing value for all our stakeholders.
Speaker Change: 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.
Speaker Change: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
It's in the question queue.
Speaker Change: You may press star 2 if you would like to remove your question from the queue. We ask that analysts limit themselves to one question and a follow-up so that others may have an opportunity to ask questions. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
Speaker Change: Our first question comes from David Manthe with Baird. Please proceed with your question.
Thank you. Good morning. Guys, I'm wondering...
Regardless of market demand and pricing and acquisitions and everything,
Speaker Change: are the focus branches and pioneer the most impactful cost initiatives on the docket for 2025 and if so is there any way you can dimensionalize the impact of those two efforts in a vacuum?
Speaker Change: I would say, you know, while broadly, David, we are doing a good job of managing SG&A, you know, across the company and and we will continue to do that in 2025.
Speaker Change: Pioneer and the Focus branch branches make a big difference. You know as we've we've done a lot of work in 2024 on those branches we saw a little bit of financial benefit from that but mostly put a lot of foundation in place there to to cause them to perform so we're looking for
Speaker Change: Good, solid results out of that, and certainly that shows up in terms of SG&A leverage.
John Guthrie: So, John, I don't have the numbers yet. Yeah, without being too specific on the numbers, I would say just in general,
John Guthrie: Most of the improvement in margin that you're seeing this year is going to be achieved by SG&A leverage and that while we do expect gross margins to be up slightly on the most of the
John Guthrie: What's embedded in our guidance is a reflection of the SG&A leverage we're getting from those two initiatives, specifically the focus branches and Pioneer from that perspective.
John Guthrie: labor supply of your customers. Are you hearing anything from your customers already about intensifying labor issues?
John Guthrie: and then I don't know if you have a Clarence Beaks type preview on the grass seed market but either those factors or both, will we not know what those look like until we get into the season or are you starting to see some initial signs?
John Guthrie: I'll take the labor and John can take grass seed. No, we haven't yet seen any impact. Obviously, there's a lot of talk about it. I think, you know, some of our customers we've heard are concerned, but they have not seen
John Guthrie: significant impacts yet. Now it's early in the year so I think we'll we'll see in the spring.
John Guthrie: So we'll see fairly quickly, I believe, if this is going to be a big issue. I just would say that, you know, labor constraints has been...
John Guthrie: an issue for our customers for a long time, and landscapers seem to be pretty agile in working around that. And of course, you know, we as SiteOne can help them.
John Guthrie: with those issues in the way that we serve them and the products, etc. So, you know, we'll work together with our customers to get through. But, you know, I think it'll be later in the spring before we see...
John Guthrie: If we're going to see impact, any meaningful impact, haven't seen that impact yet.
And John, do you want to address grass seed?
John Guthrie: With regards to grass seed, in the first half of the year, we're just going to get rollover of the existing deflation, which was 15%.
John Guthrie: We won't know for certain, really, until probably April-May time frame, have a perspective on where it's going to be in the second half of the year. I think our general thought is it's going to be in the second half of the year.
John Guthrie: is it could be down slightly less so than this year but we'll really have to see where supply and demand flows based upon the spring selling season.
All right, thanks guys. Good luck.
Thanks, David.
Speaker Change: Our next question comes from Damian Press with UBS. Please proceed with your question.
Hey, good morning, everyone.
Morning. Morning.
Speaker Change: You mentioned that tariffs are not factored into your guidance. Could you just give us a sense for how much of your product is coming out of China and Mexico?
Speaker Change: and you also said that industry would likely pass through this price. Would you expect to be able to do that relatively quickly or could there potentially be some lag in terms of raising your sales prices versus your inventory costs?
We would generally pass through prices...
relatively quickly when it gets announced from our suppliers.
Speaker Change: From that perspective, I mean, there will be certain, you know, orders outstanding that will honor
Speaker Change: from that perspective. But historically, the market, it's not just the SiteOne, has passed through price increases like this relatively quickly.
Speaker Change: You know, we estimate 10 to 15 percent, let's say, kind of use a midpoint of 13 percent.
of sales if you go Mexico, China, and Canada.
Speaker Change: have, we're not buying directly, but have a source and component.
Speaker Change: And that's not to say all of that, if there was a tariff passed through, our suppliers would pass all of that through, but if it was considered long term.
Speaker Change: you would probably expect that. But, you know, let's say 13% is kind of ballpark number where we think with, you know, majority of that being Mexico and then China.
That's helpful, thanks.
Speaker Change: There's been the devastating wildfires out there. I was wondering if that's something that you're seeing an impact on your business to date and just you know your thoughts on any potential, you know near-term as well as you know longer-term implications for your for your business.
Speaker Change: Our main, we have a maintenance component, but it's much smaller than most of the country. And so the impacts on our business have been, you know, have been marginal, I would say. Obviously, as homes are rebuilt.
Speaker Change: Landscapes that we won't go in, but that's more of a long-term
Speaker Change: benefit but you know in the short term I'd say you know my minor minor headwind nothing major and and over time obviously we'll participate with the you know rebuilding of those of those communities
Speaker Change: In terms of our facilities, luckily we had none that were affected. We had some associates.
Speaker Change: who we kind of were taking care of that were impacted, but luckily nobody was hurt and our facilities were not disrupted and the business was not disrupted in the short term.
Speaker Change: We're glad to hear that. Thanks for your insight. We'll pass it along.
Speaker Change: Our next question comes from Keith Hughes with True Security. Please proceed with your question.
Keith Hughes: Thank you. You had talked earlier about some of the branch rationalization. I think there was 4.5 million that affected Port Corrie. I just want to make sure that's correct and I assume that's something that doesn't reoccur in 2025.
Keith Hughes: That's correct. The 4.5 million is the right number. That's a one-time charge for the closure of those branches and we would not expect that to repeat.
and Troy.
25.
Keith Hughes: As a percentage of sales, what are those down to now?
Keith Hughes: I mean PVC pipe came down from I think I think down to in the 20s and then grass seed is at 15% so we would expect grass seed to continue for a couple more quarters
Keith Hughes: We think potentially PVC pipe embedded in our pricing guidance is potential additional reductions this year, and then those reductions
Keith Hughes: I should say not to the magnitude of the 20-plus percent that we're seeing right now, but we still think there could be pressure. We don't have that finalized or really kind of announced in the marketplace, but we do think there's a risk there, and that's embedded in the zero to one percent, or negative one percent number referenced in the call.
Speaker Change: As a percentage of your sales, what are these products? Oh, percentage of our sales. I apologize. You answered my next question already, so thank you for that. What is the percentage of your sales? We do roughly $150 million in grass seed sales, and PVC pipe is roughly 4% of our sales.
Okay, thank you.
Speaker Change: Our next question comes from Stephen Volkman with Jeffries. Please proceed with your question.
Stephen Volkman: Great. Thank you guys. Curious if you can provide a little bit more detail relative to the Focus stores and also what you're doing with Pioneer. Certainly appreciate closing locations. That's sort of obvious. But what do you do in the rest of the stores to get those margins up to the to the corporate average? And how long do you think that takes?
Speaker Change: Yeah, I'll take Pioneer first. You know, as we mentioned before, Pioneer was a
a bit of a turnaround opportunity, highly strategic, and so...
Speaker Change: The first order of business was to get it integrated on our system, which it is now fully integrated. In fact, we were able to upgrade our systems.
Speaker Change: with some of the things that Pioneer did that we wanted to copy, quite frankly. And then staffing, there were significant staffing opportunities to downsize.
Speaker Change: Pioneers now under new local management with a leader that we have
Speaker Change: and Freight cost that was not where it needed to be, and that's all been kind of right side. So, a lot of cost out on the SG&A side, cost out on the delivery side. As we mentioned, we consolidated.
Speaker Change: you know, six of the branches, you know, to make the network efficient. And so we feel like we're, you know, kind of locked and loaded, if you will, to go into 25 and really perform. When you look at the focus branches broadly, you know, and again, this is the, you know, the bottom, you know, kind of 20 percent of our branches.
Speaker Change: You know, a lot of it is leadership, quite frankly. And, you know, so that heavy lifting has been done. And then, you know, there's a bit of right-sizing, there's product mix.
There's, you know...
sales
and service issues that have to be resolved.
Speaker Change: And so as we go into 25, again, a lot of the heavy lifting has been done. We got a little bit of financial benefit in 2024, but we expect to marshal significant benefit in 25. For those, the broad set of focus branches, and for Pioneer, quite frankly, it's a multi-year. It won't all come through.
Speaker Change: in 25, right? We'll get a good amount of benefit in 25 and 26, but let's say by 27, we expect those branches and pioneer.
Speaker Change: to be performing up where we expect them to perform. So it gives us some extra use, if you will, in terms of profit growth.
Speaker Change: You'll see a lot of it come through, as John mentioned, in SG&A leverage.
Speaker Change: And obviously on the EBDA front, we expect our adjusted EBDA margin to move significantly with the improvement in those over the, not just next year or this year, but over this year and next year.
Speaker Change: Great okay thank you that's helpful and then sort of switching gears you brought back I think 30 million in stock in the quarter and you're sort of I guess the stocks kind of trading at the low end of its recent range is there any chance that you kind of focus a little bit more on buybacks versus M&A and given the stock price where it is?
Speaker Change: I think our number one focus is on growing the business and investing in the business and M&A is part of our growth strategy so I don't think we're going to pull back on M&A, good M&A investments and opportunities.
Speaker Change: to just repurchase shares. That's not to say there won't be opportunity to repurchase shares like we did in Q4, but our number one is, you know, making a great business and growing the business.
Speaker Change: Yeah, and just to add to that, you know, we're still building, we're in the building and growth mode of SiteOne, and so both investing in the existing business, but also investing in acquisitions is strategic for us, and so if a seller's ready to sell their business...
Speaker Change: And if it's with SiteOne, we're going to obviously acquire it if we can get to an agreement. And so that's number one, and so we tend to look at it, okay, let's invest in the business. We're growing the business, building the business.
Speaker Change: But we have strong cash flow, and if we have excess cash flow, then the next opportunity is to purchase shares.
Speaker Change: and give those funds back to the shareholders. So that's the clear order we see it in. And so we'll see how 2025 goes. But purchasing of shares comes always after investment and growing and building our business.
All right, very clear. Thank you.
Speaker Change: Our next question comes from Carlos Prone-Pache with Goldman Sachs. Please proceed with your question.
Carlos Prone-Pache: Good morning. Thank you for taking my question. First, it's great to see that commercial initiatives are coming through and are expected to drive further market share gains in 2025. Can you maybe unpack some of the initiatives supporting that between Partners Program, Private Label, and others? And where do you see the biggest opportunity for further share gains this year and beyond?
Carlos Prone-Pache: Yeah, so you know there's a lot of things that go into our share gaining. I'll start with our, you know, the front end. We have a very significant opportunity to to grow with small customers we mentioned.
you know, our small customer efforts.
Carlos Prone-Pache: You know, evidence of that is we had 24,000 new members of our Partners Program, that's up to 71,000 now. Most of those are small customers, and so we're really, and we're underweight with small customers in general. If you look at our 18% market share.
we would be significantly below that with the smaller customers.
Carlos Prone-Pache: and significantly above that with the large customers. So there's a long way to go there, and that's driving some of our growth. It also helps drive our gross margin improvement. A part of that small customer is our Hispanic customers, and...
Carlos Prone-Pache: We have a very targeted Hispanic marketing program. We mentioned our bilingual branches are up from 58% to 63%. We want to continue to drive that up. We gained an unaided awareness with our Hispanic customer base, six percentage points.
Carlos Prone-Pache: last year. So we're excited about that. So our marketing is working. And so those initiatives are terrific ways to grow.
Carlos Prone-Pache: are Site One to grow our product lines with competitively priced, but higher margin types of products.
Carlos Prone-Pache: And then, you know, hardscapes, lighting, we continue to grow in those categories. And that's really just a super fragmented market. We're by far the largest.
Carlos Prone-Pache: And with our product portfolio, our product lines and our sales ability, we're able to drive growth in those product lines. For maintenance, we're growing in pest control, which is kind of an offshoot of maintenance.
Carlos Prone-Pache: And we're driving a lot of good growth there. And then I'd say, in general, with our sales force,
Carlos Prone-Pache: You know we installed Salesforce CRM about two years ago. It's really becoming mainstay today And it's helping our sales force get much more focused on you know specific opportunities that they're going after
Carlos Prone-Pache: The final is digital. Digital has been a big enabler for us.
Carlos Prone-Pache: We're ramping up digital. We were up 180% this year. We now have 6,400.
Carlos Prone-Pache: regular purchasers online, and that's double what it was the year before.
Carlos Prone-Pache: We have about over 50,000 customers that use digital to check pricing.
Carlos Prone-Pache: and to, you know, pay their bills, etc. And so, because we're a leader in digital in the space, those things cause customers to move more of their business to us. It makes doing business easier for them. It makes them more efficient.
Carlos Prone-Pache: And so we're excited to see the impact that digital has. So a lot of...
Carlos Prone-Pache: A lot of different arrows in our quiver, if you will, and we're pushing them all and we're excited about the success we've had over the last couple years.
We think that will continue to ramp up in 2025.
Speaker Change: Got it. That's good color, Doug. And maybe a little bit more high-level. Obviously, 2024 was a challenging year in terms of the macro and deflation driving the EBITDA margins at just over 8%. And I think we all recognize the limited visibility on the outlook when looking ahead.
Speaker Change: So I guess, against that, it's encouraging to hear that you're expecting the margin to improve in 2025 with the ongoing initiative in place, but when you look at the business, let's say, over the next three years,
Speaker Change: How confident are you that SiteOne can return to a double-digit-adjusted EBITDA margin?
Speaker Change: should demand conditions remain relatively similar to what they are today? And in other words, how much could organic initiatives drive the gross margin, maybe more particularly the SG&E leverage, both in terms of the volume gains and cost reduction effort, and where do you see the most opportunity for improvement?
Speaker Change: Yeah, I mean we're very confident to get back to double digits and as you know our objectives are above that, you know Or above that we've stated the long-term objective of 13 to 15 percent but you know first order of business as you mentioned is get back to double digits and We see a clear path from here to there over the next, you know
Speaker Change: in the next couple of years. And it will be more of the same. Our initiatives are designed around making our business more productive.
Speaker Change: and continuing to improve our gross margin and, of course, organic growth drives that. And our acquisitions, when they come in, they enhance it. So, we have many years of improvement. When you look inside SiteOne,
Speaker Change: You know, we have regions and, you know, large areas that are up where that long-term objective is.
Speaker Change: And so we see clearly where we need to be. It's just a matter of getting the whole organization there. And then again, the focus branch efforts.
Speaker Change: are going to be big in that as well, right, as we bring up our bottom.
Speaker Change: branches, you know, that sends us toward that longer-term objective. So very confident to get back to double digits. You should see a steady path there, but not stopping at that point. Continuing to improve the profitability of the company where we know we can be longer term.
Speaker Change: Our next question comes from Matthew Boulay with Barclays. Please proceed with your question.
Matthew Boulay: Hey, good morning, everyone. Thank you for taking the questions. I wanted to ask about the price increases you mentioned on some of the finished goods and the timing around all that. I guess kind of now here in mid-February, have you started to pass through any of those price increases yet on the finished goods? Or I guess typically kind of when would these non-commodity price increases begin to flow through for Site I? Thank you.
Matthew Boulay: We're putting those in right now. It's a rollout, but our 2025 pricing is going across the country and will be in by mid-February.
Speaker Change: Thanks for that John. Secondly, just back on the gross margin side, I think you talked about slight improvement for the year. I just wanted to touch on the cadence of that a little bit. Obviously Q4 kind of exited still a little bit down from the prior year. Given the cadence of inflation and all that and everything else you're seeing, would we be looking at
Speaker Change: Gross margins kind of flat or still down in the first half and then you see improvement later in the year Or is it a little bit more evenly spread in terms of that slight improvement? Thank you. I think I think It will be
Speaker Change: could be a little pressure in Q1. I would say in general, Q1, knowing that we benefited from, you know, an early spring last year, Q1,
Speaker Change: You know, numbers could be a little weaker from that perspective. But really, most of the business should be running, you know,
Speaker Change: You know, all cylinders in Q2, Q3, and that's where we expect to make almost the majority of our improvements for the fall year.
Got it. Thanks, Sean. Good luck, guys.
Speaker Change: Our next question comes from Mike Dahl with RBC Capital Markets. Please proceed with your question.
Speaker Change: Hi, this is Chris on for Mike. Just going back to the pricing.
Speaker Change: This quarter, you guys saw a down three in price, so I was hoping if you guys could maybe give a little more color on what you expect pricing to look like.
Speaker Change: to look like for the course of the year? Should we expect a similar magnitude decline in the first half and improving in the second? And then within your flat to down slightly guide, could you break out specifically what you're assuming for commodity deflation and what your...
expecting to pass through on non-commodity.
Well, I won't...
Speaker Change: split it out there, but we would expect kind of price deflation overall
to be around negative 2%.
Speaker Change: in Q1, and then moving up to negative one in Q2, and then, you know, being slightly positive in the second half of the year.
Speaker Change: That's helpful. And then maybe similarly on volumes, when you blend up your end market expectations, how are you thinking about kind of first half, second half in terms of volume growth?
Speaker Change: We don't think, as you know, first half and second half, I don't think we think there is a measurable difference in the data that we don't have built into our guidance.
Doug Black: you know, a strong economic recovery. You know, Doug talked about a resilient market, you know, and so it's not, we're not expecting...
Doug Black: a huge recovery in the business. The market's going to be kind of where it's at for the remainder of the year, and we're planning on hitting our numbers through our initiative. I guess the only thing I will call, and I just mentioned it on the last one,
Doug Black: is there could be a swing between Q1 and Q2 because we do believe with the early spring last year we pulled sales from Q2 into Q1.
Speaker Change: Understood? And that was the 5% volume growth that we saw in QMix, sir.
Speaker Change: Our next question comes from Jeffrey Stevenson with Luth Capital Markets. Please proceed with your question.
Jeffrey Stevenson: Hey, thanks for taking my questions today. So it sounds like you saw a nice sequential improvement and repair and upgrade demand during the fourth quarter. I just wondered if you could provide any more details on how demand and bidding activity, you know, has trended and what gives you confidence that in-market demand will be, you know, flat next year or this year.
Jeffrey Stevenson: Yeah, so when we look at our products that are tied to remodel like hardscapes and lighting, we saw a nice sequential improvement, say from, you know, the second quarter to the third quarter to the fourth quarter, and so it seems as though
Jeffrey Stevenson: The market has kind of stabilized. I mean it was it was weak last year for sure But it was certainly weaker in the first half than it was in the second half
And so we see that kind of...
Jeffrey Stevenson: continuing in to next year, and then talking to our customers. We think it could be, I think we called it flat to slightly down. We think it could be slightly down next year, but we don't feel it'll be down as much as it was this year. We think it works. All right, who's behind us?
Romano
Speaker Change: I understand. That's helpful, Doug. Thank you for that. And then the M&A pipeline, you know, sounds robust after another, you know, strong year of acquisitions. Have you seen any, you know, significant changes and, you know, seller expectations as you progress through last year, if things remain, you know, largely pretty status quo in the industry?
Speaker Change: Yeah, I would say, while it's kind of boring, it would be pretty status quo, no significant changes in terms of expectations.
Or, uh...
Speaker Change: You know, market demand, we still have a very strong pipeline, as you mentioned, and we expect to continue to be able to close, you know, and add new companies in this year and going forward.
Great, thank you.
Speaker Change: We have reached the end of our question and answer session. I would now like to turn the floor back over to Doug Black for closing comments.
Speaker Change: Okay, thank you all for joining us today. We very much appreciate your interest in SiteOne and look forward to speaking to you again at the end of the next quarter. Again, a big thank you to our associates, our customers, and suppliers. It's a team sport and we certainly are honored to be joined with them in building our great company.
Take care
Speaker Change: This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.
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Speaker Change: Take a shot of that, Scott? Take a shot of that, Scott?
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