Q2 2025 SiteOne Landscape Supply Inc Earnings Call
Doug Black: Greetings and welcome to the SiteOne Landscape Supply's second quarter 2025 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Guthrie, Executive VP and Chief Financial Officer. Thank you. You may begin.
Greetings and welcome to the site 1 Landscape Supply second quarter 2025 earnings call.
At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance, please press *0 on your telephone keypad. 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. Thank you. You may begin.
John Guthrie: Thank you and good morning, everyone. We issued our second quarter 2025 earnings press release this morning, hosted a slide presentation to the investor relations portion of our website at investors.siteone.com. I am 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.
Thank you, and good morning, everyone.
We issued our second quarter 2025 earnings press release this morning and posted a slide presentation to the investor relations portion of our website at investors.siteone.com.
I enjoyed today by Douglas our chairman and chief executive officer and Scott Salman Executive, Vice President strategy and development.
Before we begin, I would like to remind everyone that today's press release and presentation 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.
John Guthrie: 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.
such risks and uncertainties include the factor of 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 with. 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.
Doug Black: Thanks, John. Good morning, and thank you for joining us today. We are pleased to achieve continued solid results during the second quarter, with 3% net sales growth and 8% growth in adjusted EBITDA, despite broader economic uncertainty and softness in our end markets. Our teams are executing our initiatives well, yielding excellent SG&A leverage, good gross margin improvement, and meaningful market share gains. We also benefited from a more favorable price-cost environment, with overall flat pricing for the quarter. Finally, we added two excellent companies to SiteOne in July, expanding our full product line capability in those local markets. Overall, with strong teams, a winning strategy, and excellent execution of our commercial and operational initiatives, we are delivering solid performance and growth in 2025, despite softer end markets, and are in a strong position to accelerate our performance and growth in the coming years.
Thanks John.
Good morning, and thank you for joining us today.
We are pleased to achieve continued solid results during the second quarter.
3% net sales growth and 8% growth in adjusted EBITDA, despite broader economic uncertainty and softness in our end markets.
Our teams are executing our initiatives well.
Yielding. Excellent sgna, Leverage.
Good growth, margin Improvement and meaningful market share gains.
We also benefited from a more favorable price cost environment.
With overall, flat pricing for the quarter.
Finally we added 2. Excellent companies to cite 1 in July. Expanding our full product line capability in those local markets.
Overall, with strong teams, a winning strategy, and excellent execution of our commercial and operational initiatives.
We are delivering solid performance and growth in 2025, despite softer markets.
And are in a strong position to accelerate our performance and growth in the coming years.
Doug Black: I will start today's call with a brief overview of our unique market position and our strategy, followed by some highlights from the quarter. John Guthrie will then walk you through our second 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 before taking your questions. As shown on slide four of the earnings presentation, we have a strong footprint of more than 680 branches and four distribution centers across 45 United States and six Canadian provinces. We are the clear industry leader, over three times the size of our nearest competitor, and larger than 2 through 10 combined. Yet we estimate that we only have about an 18% share of the very fragmented 25 billion wholesale landscaping products distribution market.
I will start today's call with a brief overview of our unique Market position and our strategy.
Followed by some highlights from the quarter.
John Guthrie will then walk you through our second quarter Financial results in more detail.
And provide an update on our balance sheet and liquidity position.
Scott Solomon will discuss our acquisition strategy.
And then I will come back to address our latest outlook before taking your questions.
As shown on slide 4 of the earnings presentation, we have a strong footprint of more than 680 branches and 4 distribution centers across 45 states in the United States.
And 6 Canadian provinces.
We are the clear industry leader, over 3 times, the size of our nearest competitor and larger than 2 through 10 combined.
Doug Black: Accordingly, our long-term opportunity to grow and gain market share remains significant. We have a balanced mix of business, with 65% focused on maintenance, repair, and upgrade, 21% focused on new residential construction, and 14% on new commercial and recreational construction. At the only national full product line wholesale distributor in the market, we also have an excellent balance across our product line, as well as geographically. Our strategy to fill in our product lines across the US and Canada, both organically and through acquisition, further strengthens this balance over time. 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 resilience in softer markets.
Yet, we estimate that we only have about an 18% share of the very fragmented, 25 billion, wholesale landscaping, products distribution Market.
Accordingly, our long-term opportunity to grow and gain market, share remain significant.
We have a balanced mix of business, with 65% focused on maintenance repair and upgrade.
New residential construction and 14% on new commercial and recreational construction.
at 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.
Our strategy to fill in our product lines across the U.S. and Canada.
Organically and through acquisition further. Strengthens this balance over time.
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 resilience in software markets,
Doug Black: Turning to slide five, 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 superior value to our customers and suppliers. We've come a long way in building SiteOne and putting the teams and systems in place to fully execute our strategy at a high level across each of our product lines. In the current challenging market environment, we are making good progress in leveraging our capabilities to drive tangible results with consistent market share gains, improved SG&A leverage, and steady gross margin improvement. Through our commercial and operational initiatives, we believe that we are delivering industry-leading value for our customers and suppliers and solid performance improvement and growth for our shareholders this year.
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.
All in support of our talented experienced and entrepreneurial local teams to consistently deliver Superior value to our customers and suppliers.
We've come a long way in building Site 1 and putting the teams and systems in place to fully execute our strategy at a high level across each of our product lines.
In the current challenging Market environment, we are making good progress in leveraging, our capabilities to drive tangible results with consistent market. Share gains.
Improved sgna, Leverage.
And steady gross margin Improvement.
Through our commercial and operational initiatives, we believe that we are delivering industry-leading value for our customers and suppliers.
Solid performance Improvement.
Doug Black: Importantly, we are gaining momentum for continued success in the years to come. 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. Taken all together, we believe our strategy creates superior value for our shareholders through organic growth, acquisition growth, and EBITDA margin expansion. On slide six, you can see our strong track record of performance and growth over the last eight years. From an adjusted EBITDA margin perspective, we benefited from extraordinary price realization due to rapid inflation in commodity products during 2021 and 2022. In 2023 and 2024, we experienced significant headwinds as those commodity prices have come down.
And growth for our shareholders this year.
Importantly, we are gaining momentum for continued success in the years to come.
These initiatives are complemented by our acquisition strategy which fills in our product portfolio. Moves us into new Geographic markets and as terrific new talent to site 1,
Taking all together, we believe our strategy creates superior value for our shareholders through organic growth, acquisition growth, and EBITDA margin expansion.
On slide 6, you can see our strong track record of performance and growth over the last 8 years.
From an adjusted ebda margin perspective. We benefited from extraordinary price realization due to Rapid inflation and commodity products during 2021 and 2022.
in 2023 and 2024, we experienced significant headwinds as those commodity prices have come down,
Doug Black: In 2024, we also experienced further adjusted EBITDA margin dilution from the acquisition of Pioneer, a large turnaround opportunity with great strategic fit, and from our other focus branches as a result of the post-COVID market headwinds. We expect pricing to transition in 2025 from a negative 1% in the first quarter to a positive 1% to 2% in the fourth quarter, setting us up for more normal inflation and price realization in 2026. Furthermore, we are achieving excellent progress with Pioneer and our other focus branches year to date and expect to continue achieving improvements over the next several years as we bring their performance up to the SiteOne average. In summary, we are positioned to drive good adjusted EBITDA margin improvement in 2025 and in the coming years as we execute our initiatives and as the market headwinds turn to tailwinds.
In 2024, we also experienced further adjusted EBITDA margin dilution from the acquisition of Pioneer, a large turnaround opportunity with great strategic fit.
And from our other Focus branches, as a result of the postcovid market headwinds.
We expect pricing to transition in 2025 from a negative 1% in the first quarter to a positive 1 to 2% in the fourth quarter.
That is up for more normal inflation and price realization in 2026.
Furthermore, we are achieving excellent progress with Pioneer and our other Focus branches year to date and expect to continue achieving improvements over the next several years. As we bring their performance up to the site 1 average.
In summary, we are positioned to drive. Good adjusted ebda margin Improvement in 2025,
And in the coming years, as we execute our initiatives and as the market headwinds turn to tailwinds,
Doug Black: We completed our 100th acquisition in March, with over $2 billion in acquired revenue added since the start of 2014. These milestones demonstrate the strength and durability of our acquisition strategy. Our pipeline of potential deals remains robust, and we expect to continue adding more companies in 2025 to support our growth. These companies strengthen SiteOne with excellent talent and new ideas for performance and growth. 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. 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. We are well connected with the best companies in our industry and expect to continue filling in these markets systematically over the next decade.
We completed our 100th acquisition in March with over 2 billion in acquired Revenue, added since the start of 2014.
These Milestones demonstrate the strength and durability of our acquisition strategy.
Our pipeline of potential deals remains robust.
We expect to continue adding more companies in 2025 to support our growth.
These companies strengthen Site 1 with excellent talent and new ideas for performance and growth.
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.
Flight 7 shows the long runway. We have a head in filling in our product portfolio, which we aim to do primarily through acquisition, especially in the nursery heartscapes and landscape supplies categories.
We are well connected with the best companies in our industry and expect to continue filling in these markets, systematically over the next decade.
Doug Black: I will now discuss some of our second quarter highlights, as shown on slide eight. We achieved 3% net sales growth in the second quarter, with flat organic daily sales and 3% growth due to acquisitions. Organic sales volume was flat during the second quarter, reflecting broader end market softness offset by continued share gains. Pricing was also flat, which was in line with expectations as we benefited from a more favorable price-cost dynamic as the quarter progressed. As expected, the growth in maintenance-related demand remained steady in Q2, and with the benefit of market share gains, we achieved 7% organic daily sales growth with our agronomic products. The repair and upgrade market remained soft as expected, and the new residential construction market was also down, especially in markets that were strong last year, like Texas, Florida, Arizona, and California.
I will now discuss some of our second quarter highlights as shown on slide 8.
We achieved 3% net sales growth in the second quarter, with flat organic daily sales.
Acquisitions.
Organic sales volume was flat during the second quarter, reflecting broader market softness, offset by continued share gains.
Pricing was also flat, which was in line with expectations, as we benefited from a more favorable price-cost dynamic as the quarter progressed.
As expected, the growth and maintenance-related demand remained steady in Q2.
And with the benefit of market share gains, we achieved 7% organic daily sales growth with our agronomic products.
The repair and upgrade Market remains soft as expected.
And the new residential construction Market was also down.
Especially in markets that were strong last year. Like Texas, Florida, Arizona, and California.
Doug Black: Accordingly, our landscaping products were down 1% for the quarter, which we also believe reflects some market share gains. Overall, we believe that we are continuing to outperform the market consistently through our commercial initiatives, which, with the recovery in pricing, will allow us to achieve positive organic daily sales growth for the remainder of the year, even in a down market. Gross profit increased 4% and gross margin improved by 30 basis points to 36.4% due to higher price realization, gains from our initiatives, and contributions from acquisitions. Our acquisitions, which were primarily nursery and hardscapes businesses, operated a higher gross margin but also operated a higher SG&A. Our SG&A as a percent of net sales decreased 40 basis points to 23.9% compared to the prior year period.
Accordingly, our landscaping products were down 1% for the quarter, which we also believe reflects some market share gains.
Overall, we believe that we are a continuing to outperform the market consistently through our commercial initiatives which with the recovery and pricing will allow us to achieve positive, organic daily sales growth for the remainder of the Year even in a down Market.
Those profit increased 4% and gross margin improved by 30 basis points to 36.4% due to higher price realization gains from our initiatives.
And contributions from acquisitions.
Our Acquisitions which were primarily nursery and hardscapes businesses operate at a higher, gross margin, but also operate at a higher sgna.
Our sgna is a percent of net sales decreased 40 basis points to 23.9% compared to the prior year period.
Doug Black: For the base business, SG&A as a percent of net sales on an adjusted basis decreased approximately 60 basis points, demonstrating our strong execution and follow-through on key initiatives despite the flat organic daily sales. With disciplined expense management, improved operating leverage, and good progress with our focus branches, we were able to achieve meaningful leverage in our business. We are excited to continue gaining leverage through our initiatives, aided in the second half by improved pricing and expected positive organic daily sales growth. Adjusted EBITDA for the quarter increased 8% to 226.7 million, and adjusted EBITDA margin improved 60 basis points to 15.5% due to higher net sales, improved gross margin, and increased SG&A leverage. With pricing continuing to normalize and with our commercial and operational initiatives yielding stronger results, we are pleased to resume adjusted EBITDA margin expansion this year and expect continued improvement in the coming years.
for the base business sgna is a percent of net sales on an adjusted basis, decreased approximately 60 basis points, demonstrating our strong, execution, and follow through on key initiatives, despite the flat organic daily sales
With disciplined expense management, improved operating leverage and good progress with our Focus branches. We were able to achieve meaningful leverage in our business.
We are excited to continue gaining leverage through our initiatives, aided in the second, half by improved pricing and expected. Positive, organic daily sales growth,
Adjusted EVDA for the quarter increased 8% to $226.7 million.
And adjusted EPA margin improved 60 basis points to 15.5% due to higher net sales, improved gross margin and increased sgna Leverage.
With pricing continuing to normalize and with our commercial and operational initiatives, yielding stronger results.
We are pleased to resume adjusted ebda margin expansion this year and expect continued Improvement in the coming years.
Doug Black: In terms of initiatives, we are executing specific actions to improve our customer excellence, accelerate organic growth, expand gross margin, and increase SG&A leverage. For gross margin improvement, we continue to increase sales with our small customers faster than our company average, drive growth in our private label brands, and improve inbound freight costs through our transportation management system. These initiatives not only improve our gross margin but also add to our organic growth as we gain market share in the small customer segment, as well as across product lines with our competitive private label brands like ProTrade, Solstice Stone, and Portfolio. Collectively, these three brands grew by over 30% in the first half of this year.
In terms of initiatives, we are executing specific actions to improve our customer excellence.
Accelerate organic growth.
Expand gross margin and increase sgna Leverage.
For gross margin improvement, we continue to increase sales with our small customers faster than our company average.
Drive growth in our private label Brands and improve inbound freight costs through our transportation management system.
These initiatives not only improve our gross margin but also add to our organic growth as we gain market share in the small customer segments, as well as across product lines.
Competitive private label brands like ProTrade, Solstice, Stone, and Portfolio.
Collectively, these 3 Brands grew by over 30%, in the first half of this year.
Doug Black: To further drive organic growth, we continued to increase our percentage of bilingual branches from 63% to 67% during the first half of the year and are executing Hispanic marketing programs to create awareness among this important customer segment. We are also making great progress with our salesforce productivity as we leverage our CRM and establish more disciplined revenue-generating habits and processes among our inside sales associates and our over 590 outside sales associates. This year, our outside sales force is covering approximately 10% more revenue than in 2024, with no additional headcount, allowing us to achieve higher organic sales growth at a lower cost. Our digital initiative with siteone.com is also helping us to drive organic daily sales growth as customers who are engaged with us digitally grow significantly faster than those who are not. We've grown digital sales by over 130% in the first half of 2025.
To further drive organic growth, we continued to increase our percentage of bilingual branches from 63% to 67% during the first half of the year.
And are executing Hispanic marketing programs to create awareness among this important. Customer segments.
We are also making great progress with our sales force productivity as we leverage our CRM and...
Establish more disciplined Revenue generating habits.
Processes among our inside, sales associates, and our over 590 outside sales, associates.
This year, our outside sales force is covering approximately 10% more revenue than in 2024, with no additional headcount.
Allowing us to achieve higher organic sales growth at a lower cost.
Our digital initiative with SiteOne.com is also helping us to drive organic daily sales growth, as customers who are engaged with us digitally.
Grow significantly faster than those who are not.
Doug Black: We continue to cultivate thousands of new regular users of siteone.com, helping customers to be more efficient and helping us to increase market share while making our associates more productive, a true win-win-win. Through siteone.com and our other digital tools, we are accelerating organic growth, and we believe we are outperforming the market. With the benefit of DispatchTrack, which allows us to more closely manage our customer delivery, we are now able to improve both associate and equipment efficiency for delivery while more accurately pricing this service. We believe that we can significantly lower our net delivery expense while improving the experience for our customers. So far this year, we have reduced our net delivery expense by over 40 basis points on delivered sales, which represents approximately one-third of our total sales.
We continue to cultivate thousands of new regular users of sight. 1.com helping customers to be more efficient and helping us to increase market share while making our Associates more productive,
True win. Win win.
Recite 1.com and our other digital tools.
We are accelerating organic growth and we believe we are outperforming the market.
With the benefit of dispatch track, which allows us to more closely, manage our customer delivery.
We are now able to improve both associate and Equipment efficiency for delivery while more accurately pricing this service.
We believe that we can significantly lower our net delivery expense while improving the experience for our customers.
Doug Black: This is a major initiative, and we expect to make significant progress this year and the next two to three years. Last year, we mentioned that we are intensely managing our underperforming branches or focus branches to ensure that they have the right teams, the right support, and are executing our best practices to bring their performance up to or above the SiteOne average. As a part of these aggressive efforts, we consolidated or closed 22 locations in 2024 to strengthen our operations and better serve our customers at a reduced cost. In the first half, we improved the adjusted EBITDA margin of our focus branches by over 200 basis points, and we expect to gain a meaningful adjusted EBITDA margin lift for SiteOne in the coming years as we improve the performance of these branches.
So far this year, we have reduced our net delivery expense by over 40 basis points on delivered sales which represents approximately 1/3 of our total sales.
This is a major initiative and we expect to make significant progress this year in the next 2 to 3 years.
Last year we mentioned that we are intensely managing our underperforming branches or Focus branches to ensure that they have the right teams, the right support and are executing our best practices to bring their performance up to, or above the site, 1 average.
As part of these aggressive efforts, we consolidated or closed 22 locations in 2024 to strengthen our operations and better serve our customers at a reduced cost.
In the first half, we improved the adjusted EBITDA margin of our focus branches by over 200 basis points.
And we expect to gain a meaningful adjusted ebda margin. Lift for Sight, 1 in the coming years as we improve the performance of these branches.
Doug Black: Taken all together, we are gaining momentum with our commercial and operational initiatives, which are improving our capability to drive organic growth, increase gross margin, and achieve operating leverage. On the acquisition front, as I mentioned, we added two excellent companies to our family in July and have added four companies and approximately 30 million in trailing 12-month sales to SiteOne so far in 2025. We're having conversations with a lot of companies, but many of the more advanced discussions are with smaller companies. So we expect that 2025 will be a lighter than normal year in terms of acquired revenue, even as we are aggressively cultivating key targets for future years.
They can all come together. We are gaining momentum with our commercial operational initiatives, which are improving our capability to drive organic growth.
Increased gross margin and achieved operating Leverage.
On the acquisition front. As I mentioned, we added 2. Excellent companies to our family in July and have added 4 companies and approximately 30 million, and trailing 12 months sales to cite 1 so far in 2025,
We're having conversations with a lot of companies.
But many of the more advanced discussions are with smaller companies.
We expect that 2025 will be a lighter-than-normal year in terms of acquired revenue, even as we are aggressively cultivating key targets for future years.
Doug Black: We remain well-positioned to grow consistently through acquisition for many years, with an experienced acquisition team, broad and deep relationships with the best companies in the industry, and a strong balance sheet and an exceptional reputation for being a great long-term home for companies in our industry. In summary, our teams are doing a good job of managing through the near-term market environment, leveraging our many opportunities for improvement, prudently adding new companies to SiteOne through acquisition, and building our company for the long term. Now, John will walk you through the quarter in more detail. John?
We remain well positioned to grow consistently through acquisition from many years.
With an experienced acquisition team Broad and deep relationships with the best companies in the industry and a strong balance sheet.
And an exceptional reputation for being a great long-term home for companies in our industry.
In summary, our teams are doing a good job of managing through the near-term market environment.
Leveraging our many opportunities for improvement.
Currently adding new companies to cite 1 through acquisition and building our company for the long term.
Now, John will walk you through the quarter in more detail.
John.
John Guthrie: Thanks, Doug. I'll begin on slide nine with some highlights from our second quarter results. There were 64 selling days in the second quarter, which is the same as the prior year period. Organic daily sales were flat in the second quarter compared to the prior year period. Solid growth in the maintenance end market was offset by softer demand in the new residential construction and repair and upgrade end markets. Overall, we saw both flat volume and flat pricing for the quarter. This was the first time since the second quarter of 2023 that price deflation did not negatively impact sales. Pricing improved sequentially from 1% deflation in the first quarter to flat in the second quarter due to tariff-related supplier price increases and as we lapped some of last year's price decreases.
Thanks, Doug. I'll begin on slide 9 with some highlights from our second quarter results.
There were 64 selling days in the second quarter, which is the same as the prior year period.
Organic daily sales were flat in the second quarter compared to the prior year period.
And solid growth in the maintenance. And Market was offset by softer demand, and the new residential construction and repair, and upgrade and markets.
Overall, we saw both flat volume and flat pricing for the quarter.
This was the first time since the second quarter of 2023 that price deflation did not negatively impact sales.
John Guthrie: We estimate our exposure to tariffs is approximately 10% to 15% of sales, and in those products, we saw manufacturers start to pass through the tariff cost with higher prices. Price deflation for commodity products like PVC pipe and grass seed, which account for approximately 7% to 8% of annual sales, continued to negatively impact sales growth, though the impact was smaller than in prior quarters. In the second quarter, pricing for PVC pipe was down approximately 15% year over year, and pricing for grass seed was down approximately 9% year over year. We expect grass seed prices to decline further in the third quarter and be down 10% to 20% over the year for the remainder of the year. Taken all together, our revised outlook for pricing for the full year is approximately flat.
Pricing improved sequentially from 1%. Deflation in the first quarter to flatten, the second quarter due to tariff, related supplier, price increases and as we lap some of last year's price decreases
We estimate our exposure to tariffs is approximately 10% to 15% of sales.
And in those products, we saw manufacturers start to pass through the Tariff costs with higher prices.
Price deflation for commodity products, like PBC pipe and grass seed, which account for approximately 7% to 8% of annual sales, continue to negatively impact sales growth?
though the impact with smaller than in Prior quarters,
in the second quarter pricing for PBC pipe was down approximately, 15% year-over-year,
And pricing for grass seed was down approximately 9% year-over-year.
Over the year for the remainder of the year.
They can all together.
John Guthrie: We expect pricing to be flat in the third quarter due to seed deflation and up 1% to 2% in the fourth quarter. Given the changing nature of tariffs, there is greater uncertainty than normal in our outlook. Organic daily sales for agronomic products, which includes fertilizer, control products, ice mold, and equipment, increased 7% for the second quarter due to solid demand in the maintenance end market and market share gains. Organic daily sales for landscaping products, which includes irrigation, nursery, hardscapes, outdoor lighting, and landscape accessories, decreased 1% for the second quarter due to softer demand in the new residential construction and the repair and upgrade end markets. Rainy weather across the Sun Belt and the East Coast also contributed to the weaker landscaping products' volume. Geographically, five out of our nine regions achieved positive organic daily sales growth in the second quarter.
A revised outlook for pricing for the full year is approximately flat.
We expect pricing to be flat in the third quarter due to seed deflation and up 1 to 2% in the fourth quarter.
Given the changing nature of tariffs. There is greater uncertainty than normal in our Outlook.
Organic daily sales for agronomic products which includes fertilizer control products, ice smoke and Equipment increased 7% for the second quarter due to solid demand in the maintenance and market and market share gains.
Organic daily sales for landscaping products, which includes irrigation Nursery hardscapes, outdoor lighting and Landscape accessories. Decrease 1% for the second quarter, due to softer demand in the new residential construction and the repair and upgrade and markets.
Rainy weather across the Sun Belt, and East Coast. Also contributed to the weaker landscaping products value.
John Guthrie: Regions with a larger mix of agronomic products performed better. Texas, which was our strongest sales growth market last year, is facing significant headwinds this year due to the softer new construction end market. Acquisition sales, which reflect the sales attributable to acquisitions completed in 2024 and 2025, contributed approximately 41 million, or 3%, to net sales growth. Gross profit increased 4% to approximately 531 million for the second quarter compared to approximately 510 million for the prior year period. Gross margin for the second quarter expanded 30 basis points to 36.4% due to improved price realization, gross margin improvement initiatives, and a positive contribution from acquisitions with higher gross margin. Selling general and administrative expenses, or SG&A, increased 2% to approximately 349 million for the second quarter. SG&A, as a percentage of net sales, decreased 40 basis points in the quarter to 23.9%.
Geographically 5 out of our 9 regions, achieve positive organic daily sales growth in the second quarter.
Regions with a larger mix of agronomic products perform better.
Texas, which was our strongest sales growth market last year, is facing significant headwinds this year due to the softer new construction market.
acquisition sales, which reflect the sales attributable to Acquisitions completed in 2024 and 2025 contributed approximately 41 million or 3% to net sales growth
Gross profit increased 4% to approximately 531 million for the second quarter compared to approximately 510 million for the prior year period.
Gross margin for the second quarter expanded 30 basis points to 36.4% due to improved price realization, gross margin improvement initiatives, and a positive contribution from acquisitions with higher gross margins.
Selling General and administrative expenses or sgna increase 2% to approximately 349 million for the second quarter.
John Guthrie: The SG&A leverage improvement reflects our actions to increase efficiency and better align operating costs with current market demand. For the second quarter, we recorded an income tax expense of approximately 45 million compared to approximately 40 million in the prior year period. The effective tax rate was 25.4% for the second quarter compared to 24.9% for the prior year period. The increase in the effective tax rate was primarily due to a decrease in the amount of excess tax benefits from stock-based compensation. We continue to expect the 2025 fiscal year effective tax rate will be between 25% and 26%, excluding discrete items such as excess tax benefits. Net income attributable to SiteOne for the second quarter increased 7% to 129 million due to increased net sales, improved gross margin, and SG&A leverage.
SG&A as a percentage of net sales decreased 40 basis points in the quarter to 23.9%.
The sgna Leverage Improvement, reflects our actions to increase efficiency and better. Align operating costs with current market, demand,
For the second quarter, we recorded an income tax expense of approximately 45 million compared to approximately 40 million in the prior year period.
The effective tax rate was 25.4% for the second quarter compared to 24.9% for the prior year period.
The increase in the effective tax rate was primarily due to a decrease in the amount of excess tax benefits from stock-based compensation.
We continue to expect the fiscal year 2025 effective tax rate will be between 25% and 26%.
Excluding discrete items such as excess tax benefits.
John Guthrie: Our weighted average diluted share count was approximately 45.1 million for the three months ending June 29th, 2025, compared to 45.6 million for the prior year period. We repurchased approximately 466,000 shares for 54.3 million in the second quarter. This was our largest share repurchase quarter since we initiated the plan in October of 2022. Adjusted EBITDA increased 8% to 226.7 million for the second quarter compared to 210.5 million for the prior year period. Adjusted EBITDA margin improved approximately 60 basis points to 15.5%. Adjusted EBITDA includes adjusted EBITDA attributable to non-controlling interest of 1.8 million for the second quarter of 2025, compared to 0.9 million for the second quarter of 2024. Now I would like to provide a brief update on our balance sheet and cash flow statement, as shown on slide 10.
That income attributable to cite 1. For the second quarter increase 7% to 129 million due to increased net sales, improved, gross, margin and sgna, Leverage.
Our weighted average diluted share count was approximately 45.1 million for the 3 months, ending June 29th, 2025 compared to 4 5. 6 6
We repurchased approximately 466,000 shares for 54.3 million in the second quarter. This was our largest share repurchase quarter since we initiated the plan in October 2022.
Adjusted Aventa increased 8% to 226.7 million for the second quarter compared to 2 1 0. 5. 8
adjusted ebitda margin improved, the proximity 60 basis points to 15.5%
Adjusted ebit da includes adjusted. Eva attributable to non-controlling interest of 1.8 million for the second quarter of 2025 compared to 0.9 million for the second quarter of 2024.
Now, I would like to provide a brief update on our balance sheet and cash flow statement as shown on slide 10.
John Guthrie: Working capital at the end of the second quarter was approximately 1.06 billion compared to 1.01 billion at the end of the same period prior year. The increase in working capital is primarily due to increased purchases of inventory ahead of tariffs. Net cash provided by operating activities was approximately 137 million for the second quarter compared to approximately 147 million for the prior year period. The decrease in operating cash flow primarily reflects the higher inventory purchases. We made cash investments of approximately 17 million for the second quarter compared to approximately 113 million for the same period prior year. The decrease reflects reduced acquisition investment compared to the same period last year. Capital expenditures for the quarter were approximately 14 million compared to approximately 12 million for the prior year period. The increase reflects a real estate investment at one of our branches.
Working capital at the end of the second quarter was approximately $1.06 billion, compared to $1.01 billion at the end of the same period in the prior year.
The increase in working capital is primarily due to increased purchases of inventory, ahead of tariffs.
$47 million for the prior year period.
The decrease in operating cash flow, primarily reflects the higher inventory purchases.
We made cash investments of approximately $17 million for the second quarter, compared to approximately $113 million for the same period last year.
The decrease reflects reduced acquisition investment compared to the same period last year.
Capital expenditures for the quarter were approximately $14 million compared to approximately $12 million for the prior year period.
The increase reflects, a real estate investment at 1 of our branches.
John Guthrie: Net debt at the end of the quarter was approximately 532 million compared to approximately 524 million at the end of the second quarter of the prior year period. Leverage was 1.3 times our trailing 12-month adjusted EBITDA, which is consistent with the prior year period. As a reminder, our target year-end net debt to adjusted EBITDA leverage range is one to two times. At the end of the quarter, we had available liquidity of approximately 578 million, which consisted of approximately 79 million cash on hand and approximately 499 million in available capacity under our ABL facility. Our priority from a balance sheet and funding perspective is to maintain our financial strength and flexibility so we can execute our growth strategy in all market environments. I will now turn the call over to Scott for an update on our acquisition strategy.
That debt at the end of the quarter, was approximately 532 million compared to approximately 524 million at the end of the second quarter of the prior year period.
Leverage was 1.3 times our trailing 12-month adjusted ebit da, which is consistent with the prior year period.
as a reminder, our Target year, end, net debt to adjusted debit de leverage, range is 1 to 2 times
At the end of the quarter, we had available liquidity of approximately 578 million which consisted of approximately 79 million cash on hand and approximately 499 million in available capacity under our abl facility.
A priority from a balance sheet and funding perspective is to maintain our financial strength and flexibility. We can execute our growth strategy in all market environments.
I will now turn the call over to Scott for an update on our acquisition strategy.
Scott Salmon: Thanks, John. As shown on slide 11, we acquired one company in the second quarter and two more post-quarter, bringing the total to four acquisitions year to date with a combined TTM net sales of approximately 30 million. Since 2014, we have acquired 102 companies with approximately 2 billion in TTM net sales added to SiteOne. Turning to slides 12 through 14, you will find information on our most recent acquisitions. On March 31st, we acquired GreenTrade Nursery, a single-location wholesale distributor of nursery products in Jasper, Georgia. The addition of GreenTrade extends our leading nursery position further into the fast-growing North Atlanta markets, providing our customers in these markets with greater access to high-quality nursery products. On July 24th, we acquired Grove Nursery, a single-location wholesale distributor of nursery products in Northwest Minneapolis, Minnesota.
Thanks John as shown on slide 11, we acquired 1 company in the second quarter and 2 more post quarter. Bringing the total to 4 Acquisitions year to date with a combined. TTM net sales of approximately 30 million
Since 2014, we have acquired 102 companies with approximately 2 billion in TTM net sales added to site 1.
Earning to slides, 12 to 14. You will find information on our most recent acquisitions.
On March 31st, we acquired green trade Nursery, a single location, Wholesale Distributor of Nursery products in Jasper, Georgia.
The addition of green trade extends our leading nursery position further into the fast-growing North Atlanta markets, providing our customers in these markets with greater access to high-quality nursery products.
Scott Salmon: The addition of Grove Nursery now enables us to provide a full range of products to our customers in the Twin Cities. Also, on July 24th, we acquired Nashville Nursery, a single-location wholesale nursery in Northwest Nashville, Tennessee. Joining forces with Nashville Nursery further strengthens our position as the leading wholesale distributor of nursery products in Central Tennessee. Summarizing on slide 15, 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 US and Canadian markets. As we noted during our first quarter earnings call, required revenue may be lower this year, but we have a large pipeline of deals in process, and we are actively building relationships with many others.
On July 24th, we acquired Grove Nursery, a single location, Wholesale Distributor of Nursery products in Northwest Minneapolis Minnesota.
The addition of Grove Nursery. Now enables us to provide a full range of products to our customers in the Twin Cities.
Also, on July 24th, we acquired Nashville Nursery a single location, Wholesale Nursery in Northwest Nashville, Tennessee.
Joining forces with Natural Nursery further strengthens our position as the leading wholesale distributor of nursery products in Central Tennessee.
Summarizing on flight 15. Our acquisition strategy continues to create significant value for Sight. 1 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 us and Canadian markets.
Scott Salmon: We have significant runway to grow and create value through acquisitions this year and in the years to come. As always, 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.
As we noted during our first quarter earnings call, our acquired Revenue may be lowered this year but we have a large pipeline of deals and process and we are actively building relationships with many others.
we have significant Runway to grow and create value through Acquisitions this year, and in the years to come,
As always, 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.
Doug Black: Thanks, Scott. With continued market uncertainty, elevated interest rates, weak consumer confidence, and low existing home sales, we expect the end market demand for landscaping products in total to be slightly down year over year in the second half of 2025. That said, as John mentioned, we expect pricing to continue to improve as deflation in grass seed and PVC pipe is more than offset by price increases in other products. We also expect to continue achieving market share gains through our commercial initiatives, which should contribute to our organic sales growth during the remainder of the year. In terms of end markets, we have seen a decline in new residential demand this year, especially in the high-growth markets across the Sun Belt. Accordingly, we expect the demand for landscaping products for new residential construction, which comprises 21% of our sales, to be down during the remainder of 2025.
Thanks, Scott. With continued market uncertainty, elevated interest rates, consumer confidence, and low existing home sales.
We expect the end market demand for landscaping products in total to be slightly down year-over-year in the second half of 2025.
That said, as John mentioned, we expect pricing to continue to improve as deflation in grass, seed, and PVC pipe is more than offset by price increases in other products.
We also expect to continue achieving market share gains through our commercial initiatives, which should contribute to our organic sales growth during the remainder of the year.
In terms of end markets, we have seen a decline in new residential demand this year, especially in the high-growth markets across the Sun Belt.
Accordingly, we expect the demand for landscaping products, for new residential construction which comprise 21% of our sales.
Doug Black: Continued elevated interest rates, housing affordability challenges, and lower consumer confidence are constraining demand. We expect this end market to be weak until some of these factors improve. The new commercial construction end market, which represents 14% of our sales, has remained resilient in 2025 so far, and we believe it will be flat for the remainder of the year, though our customers have smaller backlogs. Bidding activity from our project services teams continues to be slightly positive, but with the ABI index remaining below 50, there is uncertainty in new commercial construction future demand. The repair and upgrade end market, which represents 30% of our sales, has been soft again this year, and with weak consumer confidence, low existing home sales, and economic uncertainty, we believe that repair and upgrade will continue to be down in 2025.
To be down during the remainder of 2025.
Housing, affordability, challenges and lower consumer confidence are constraining demand.
We expect this end market to be weak until some of these factors improve.
The new commercial construction market, which represents 14% of our sales, has remained resilient in 2025 so far.
And we believe it will be flat for the remainder of the year though. Our customers have smaller backlogs.
Meeting activity from our project services teams continues to be slightly positive.
But with the ABI index, remaining below 50.
There is uncertainty in new commercial construction, future demand.
The repair and upgrade in Market, which represents 30% of our sales has been soft again this year and with weak consumer confidence, low, existing home, sales, and economic uncertainty. We believe that repair and upgrade will continue to be down in 2025.
Doug Black: Lastly, in the maintenance end market, which represents 35% of our sales, we achieved good sales volume growth in the first half as our teams gained market share. We expect the maintenance end market to continue growing steadily in 2025. Taken all together, we expect our end markets to be slightly down for the full year. Despite this backdrop, we expect sales volume to be slightly positive in the second half of 2025 with the benefit of our commercial initiatives. When coupled with modest price inflation, we expect low single-digit organic daily sales growth during the remainder of the year. Our sales growth in July so far supports this trend. We expect gross margin during the remainder of the year to be slightly improved compared to the same period in 2024, driven by our initiatives, improved price realization, and the contributions from acquisitions.
Lastly, in the maintenance and Market, which represents 35% of our sales, we achieved. Good sales volume growth in the first half as our teams gained market share.
We expect the maintenance and market to continue growing steadily in 2025.
Taking it all together. We expect our end markets to be slightly down for the full year.
Despite this backdrop, we expect sales volume to be slightly positive in the second half of 2025, with the benefit of our commercial initiatives.
When coupled with modest price inflation we expect low single digit organic daily sales growth during the remainder of the year.
our sales growth in July so far, supports this trend,
We expect gross margin during the remainder of the year to be slightly improved compared to the same period in 2024.
Driven by our initiatives.
Improved price realization and the contributions from acquisitions.
Doug Black: With strong actions taken in 2024 to reduce SG&A and continued focus on branch improvement, sales productivity, and delivery efficiency, we expect to continue achieving excellent operating leverage during the remainder of the year. We expect solid adjusted EBITDA margin expansion for the full year 2025. In terms of acquisitions, as mentioned earlier, we expect to add more excellent companies to the SiteOne family during the remainder of the year, though we expect to add less revenue for the full year 2025 compared to 2024 due to the smaller average acquisition size. With all these factors in mind, we continue to expect our full-year adjusted EBITDA for fiscal 2025 to be in the range of 400 million to 430 million. This range does not factor in any contribution from unannounced acquisitions.
Strong actions taken in 2024 to reduce sgna and continued. Focus on Branch Improvement, sales productivity and delivery efficiency. We expect to continue achieving, excellent, operating leverage during the remainder of the year.
We expect solid adjusted EBITDA and margin expansion for the full year 2025.
In terms of Acquisitions as mentioned earlier, we expect to add more. Excellent companies to the site 1 family. During the remainder of the year though, we expect to add less revenue for the full year, 2025 compared to 2024 due to the smaller, average acquisition size,
With all these factors in mind, we continue to expect our 4-year adjusted epda for fiscal 2025 to be in the range of 400 million to 430 million.
This range does not factor in any contribution from unannounced acquisitions.
Doug Black: In closing, I would like to sincerely thank all our SiteOne 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.
In closing, I would like to sincerely. Thank all our site 1 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.
Operator: Thank you. We will now be conducting a question and answer session. If you would 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 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, we ask you to limit to one question and one follow-up. First question comes from David Manthey with Baird. Please go ahead.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
You may press star 2 to remove yourself from the queue for participants using speaker equipment, and may be necessary to pick up your handset before pressing the star keys.
In the interest of time, we asked, you limit to 1 question and 1 follow-up.
First question comes from David, Matthew with Barrett, please go ahead.
David Manthey: Yeah, thank you. Good morning. Doug, I think you just said you expect to see continued SG&A leverage in the back half of the year, and that's great to hear. Could you give us an update? Is the bulk of the Pioneer integration materially done today? And then more broadly, are there other key efforts, consolidations, et cetera, that you're affecting in the back half that will continue to drive that leverage? Because, I mean, with acquisitions scarce and activity levels light, it's great to see you focused on the SG&A. Could you just give us a little color on what are the drivers there?
Yeah, thank you. Good morning. Um, Doug, I think you just said you expect to see continued sgna leverage in the back half of the year and that's great to hear. Um, could you give us an update, is the bulk of the pioneer integration materially done today and then more broadly are there other key efforts, consolidations, Etc, that you're um, affecting in the back half that um, will continue to to drive that leverage because I mean with Acquisitions scarce. And activity levels light, it's great to see you focused on the sgx. Just give us a little color on what's uh what are the drivers there?
Doug Black: Yeah. So, you know, Pioneer, you know, first part of your question, Pioneer is fully integrated. It's, you know, it's being kind of institutionalized, if you will, into SiteOne. We're starting to gain the synergies of, you know, combining those branches, putting in, you know, new product lines into some of their branches, et cetera. We've certainly taken a lot of SG&A out of Pioneer, and we're seeing the rewards for that. So, yeah, Pioneer is on their way. They're part of our overall focus branch effort. And so when we talk about focus branches, Pioneer is a part of that. As we mentioned, we're making good progress on the focus branches, which, which, you know, are about, at this point in time, about, you know, 140, between 140 and 150 branches across SiteOne that are underperforming.
Binding those branches.
Doug Black: We mentioned that, you know, we're up over 200 basis points in those branches. Some of that's SG&A gearing. And so, yeah, so we're very happy with the progress we're making. And again, that's something that will carry strongly into not only the second half, but also into the next couple of years as we bring those branches, including Pioneer, up to the SiteOne average. You know, in addition to that, we mentioned the other things that we're working on, you know, our delivery, our net delivery expense, and being more efficient in delivery. Great progress there. That's going to continue on. Our salesforce productivity, where we're covering more sales, is going to, you know, with, you know, essentially the same amount of sellers, is going to continue on. SiteOne.com has been a good impactor on organic growth, which gives us SG&A gearing. That's going to continue on.
Um, putting in, you know, a new product lines into some of their branches, Etc. We've certainly taken a lot of, uh, sgna out of pioneer and we're seeing the rewards for that. So, yeah, Pioneers on their way. Uh, they're part of our overall Focus Branch effort. Um, and so, when we talk about Focus, branches Pioneers or part of that, as we mentioned, we're making good progress on a focused branches which which, you know, are about at this point in time about, um, you know, 10040, uh, between 140 and 150 branches across site 1 that are underperforming. Um, we mentioned that, you know, we're, we're up over 200 basis points in those branches.
Um, some of that sgna gearing. And so, um, yeah. So we're, we're very happy with the progress we're making. And, again, that's something that will carry strongly into. Not only the second half, but also into the next couple of years. As we, as we bring those branches including Pioneer up to the, uh, the site 1 average.
You know, in addition to that, we mentioned the other things that we're working on um you know, our delivery, our net delivery expense and being more efficient in delivery. Great progress there, that's going to continue on our sales force protected productivity, uh, where we're covering more sales,
Um is going to, you know, with with you know essentially the same amount of sellers.
Doug Black: So that, yeah, so we feel very confident we can sustain our gains, again, not only just through the second half of 2025, but really for the next couple of years.
Is going to continue on. Site, 1.com has been a, a good impactor on organic growth, which gives us sgna gearing. Uh, that's going to continue on so that. Yeah. So we feel very confident we can sustain our gains again. Not not only just through the second half of 2025, but really, for the next next couple of years.
David Manthey: That's great to hear. And second, on the share repurchase as a use of cash here, while things are slow and acquisitions are skewing smaller and fewer, I think $117 average price this quarter, the second quarter is going to age pretty well. But could you update us on what's left on the authorization? And then, given you have a half a billion of borrowing capacity, could we continue to see a more aggressive share repurchase through the remainder of 2025 as a use of cash?
That's great to hear um and second on the share repurchase as a use of cash here with well things are slow and Acquisitions are skewing smaller and and fewer. Um I think 1117 average price this quarter. Uh the second quarter is going to aged pretty well but could you update us on what's left on the authorization and then giving you have a half a billion of borrowing, uh, capacity, could we continue to see a a more aggressive share repurchase through the remainder of 2025 as a use of cash?
John Guthrie: Yeah, there's roughly 250 million in available capacity under existing authorization. And certainly, as you highlighted there, as we've talked about, if we're not deploying the cash, and we've alluded to it with acquisitions, share repurchase is certainly one of the ways we will, you know, provide value back to the shareholders.
yeah, there there's a
Uh, um, and and and, and available capacity under existing authorization. Um, and certainly, as you highlighted there, the, um, uh, as we've talked about, um,
if we're not deploying the cache and, and we've alluded to, um, uh, with Acquisitions, share, repositories 1 of 1 of the ways we will, um, uh, um,
Value, back to the shareholders.
David Manthey: Thanks very much, guys.
Thanks very much, guys.
Operator: Next question, Ryan Merkel with William Blair. Please go ahead.
next question, Ryan Merkel with William Blair
Ryan Merkel: Hey, thanks. Good morning. You know, my first question, Doug, is on the outlook. You know, at this point in the year, would you point us to the midpoint of the adjusted EBITDA outlook? And what are the risks for the second half that you see? I know it's murky out there, but if there were some specifics that you could point to, that would be helpful.
Hey, thanks. Good morning. You know, my first question, Doug is on the Outlook. You know, at this point in the year, would you point us to the midpoints of the adjusted Eva Outlook? And uh, what what are the risks for the second half that you see? I know it's murky out there, but if there was some specifics that you could point to, that would be helpful.
Doug Black: Yes. I mean, our guidance is a range, and so we feel pretty good about being solidly in that range if that, you know, gives an attempt at your first part of your question. And you know, the risk, obviously, the markets are soft. We're outperforming the market. We think we can continue to outperform the market. We have confidence in that. But the risk is really, the main risk is with the market. Is it going to be, you know, deteriorate further? You know, is there going to be, you know, something that drives worse market, you know, demand than we think is coming? We think we have a pretty good barometer on where the market is now. And again, we've got a good, healthy balance. The maintenance market's going to be steady. Feel good about that.
Our, our guidance is.
About the being solidly in that, uh, range. Um, if that, you know, gives an attempt at your, uh, which part of your question, uh, and you know the risk, obviously the markets are soft.
We, we're outperforming the market, we think we can continue to outperform the market. We have confidence in that, but the risk is, is really the main risk is with the market. Um, is it going to be, you know, deteriorate further? Um,
You know, um, is there going to be, you know, something that drives worse Market? Um,
You know, demand than than we think is coming. We think we have a pretty good barometer on where the market is now. Um,
Doug Black: You know, new construction, residential, and repair and remodel are down, and we think they'll continue to be down. And then commercial has stayed pretty resilient, as we mentioned. So I think we have a pretty good read on it, but if the market is worse than we think, then obviously that'll put pressure on organic growth. And that's the primary risk. We feel really good about our initiatives, you know, the SG&A actions, et cetera. So it really comes down to organic growth. And you know, we're encouraged by what we see in July. July is, you know, but you know, July is one month out of the six. And so that's the major risk is the market.
and again, we've got a good healthy balance. The maintenance Market is going to be steady, feel good about that. Um, you know, new construction residential and, uh, repair and remodel or are down and we think they'll continue to be down. Um, and then, um, commercial is, is stay pretty resilient as we mentioned. So I think we have a pretty good read on it, but if if the market is worse than we think, then obviously that'll put pressure on um on organic growth. And that's the, that's the primary risk. We feel really good about our initiatives.
Um, you know, the sgna actions.
Is the market.
Ryan Merkel: Fair enough. And then my second question, I was also happy to see the leverage in the quarter, and you guys are clearly focused on SG&A. As we think about that long-term target, Doug, that EBITDA target of margin target of 13 to 15, can you help us with where you see gross margins landing in that area? And then what about SG&A as a percent of sales?
Fair enough. Um, and then my second question, I, I was also happy to see is the leverage in the quarter and you guys are clearly focused on sgna as we think about that long-term Target, dog, that, that ebit Target of March, and target of 13 to 15. Can you help us with where you see, gross margins Landing in that area? And then what about sgna as a percent of sales?
Doug Black: Yeah, I guess I would communicate it as they're both going to contribute to the, you know, to the path to get there. Probably more SG&A leverage than gross margin improvement. But you know, you'll see a balanced, you know, you see what we're kind of being able to achieve now in terms of improvement. And you know, those initiatives are going to continue with small customer, private label, et cetera. And so we feel good about that. SG&A leverage, you know, we would expect to contribute more as we catch up with the focus branches and as we execute our initiatives around, you know, associate productivity, delivery, et cetera. So it will be a combined formula, probably more SG&A leverage than gross margin, but they'll both contribute to the path there. And again, you know, we see ourselves making, we're going to make some good progress this year.
Yeah, I guess I would, I would uh,
Um communicate with, they're both going to contribute to the you know, to path to get there. Um,
Probably more sgna, uh, leverage than gross margin Improvement. Um, but you know you you'll see a balanced.
You know, you see what we're kind of being able to achieve now, um, in terms of uh, Improvement and uh you know, those initiatives are going to continue with small customer private label, um, Etc. And so we feel good about that.
Sgna leverage. We, you know, we would expect to contribute more.
as we catch up with the focus branches,
Doug Black: We feel that's going to continue over the next couple of years. We get into the double digits. And, but you know, that's not the cap of where we can go. We feel strongly that we'll continue to expand margins for the next five to seven years, you know, as we, you know, really codify all the best practices that we're working on and continue to add more synergies to acquisitions when we do do acquisitions.
And as we actually execute our, um, initiatives around, uh, you know, associate productivity, uh, delivery Etc. So it it will be a combined formula, uh, probably more sgna leveraged than, than gross margin. But they'll both contribute to the path there. And again, you know, we we see ourselves making we're going to make some good progress this year. We feel that's going to
continue over the next couple years, we get
Into the double digits. And but you know that's not the cap of where we can go. We feel strongly that we'll continue to expand margins for the next 5 to 7 years. You know? As we you know really codify all the best practices that we're working working on and continue to add more synergies to Acquisitions. Uh when we do do acquisitions.
Ryan Merkel: Great. Thanks. I'll pass it on.
Great, thanks. I'll pass it on.
Operator: Next question, Damian Carrasque with UBS. Please proceed.
Next question. Damian caress with UBS, please proceed.
Ryan Merkel: Hey, good morning, everyone.
Hey, good morning, everyone.
David Manthey: Morning.
Good morning.
Ryan Merkel: Morning. So I think sales were a lot better than some investors had feared just given the tough market backdrop. And Doug, you've talked a few times about market share gains and outperforming the broader market. If you had to pinpoint, you know, the commercial initiatives that are really driving that outperformance, you know, what would you point to? And you know, how much visibility do you think you have kind of in that continuing into the back half of the year here?
so, I think sales were
A lot better than uh, some investors had feared just given the tough Market backdrop and Doug. You've talked a few times about market share gains and outperforming the broader Market
If you had to pinpoint, you know, the commercial initiatives that are really driving that outperformance. Um, you know, what, would you, what would you point to and you know, how much visibility do you think you have kind of in that continuing into the back half of the Year here?
Doug Black: Yeah. So in terms of market share visibility, of course, you know, the data is scarce in this industry, but we do get, you know, great feedback from our vendors, and that's kind of our and our customers, et cetera. And so we do feel like we're picking up market share. I'd say the initiatives that are driving that are a couple. One, you know, I'd point to digital. You know, we are ramping up significantly in digital. You know, digital puts us at the front of the industry. You know, we have InsightOne.com and our ability to engage with our customers. You know, we're a market leader there. And it creates growth. It creates market share opportunities, stickiness of customers, and growth. So I feel really good about it. And digital's continuing to ramp up strongly, and we think it will, you know, for several years to come.
Yeah. So um, in terms of uh market share visibility, of course, you know we the the data is is scarce in this uh, in this industry. But we do get, you know, great feedback from our vendors. And that's kind of our and our customers Etc. And so we we do feel like we're picking up market share. I'd say the initiatives that are driving that um are a couple 1. You know, I I point to digital we you know, we are ramping up significantly in digital you know, digital puts us at the front of the industry.
Doug Black: You know, our initiatives with our salesforce and our customer excellence, you know, we're getting better and better at serving customers consistently with our salesforce, getting out there and kind of driving new market share growth. And so we feel good about that. Our private label initiatives, you know, allow us to be out there, you know, super competitive with good margins, you know, gaining market share. And then, you know, we're gaining market share in kind of adjacent product lines that where we don't have, where we have very small share today. I would point out synthetic turf, erosion control, you know, pest control on the agronomic side, equipment on the agronomic side. We still have product categories where we have, you know, our share is single digit in the market that we can penetrate. And we're taking advantage of those. So those would be the big ones.
Um, you know, we have, uh, Insight1.com and our ability to engage with our customers. You know, we're a market leader there, and it creates growth, it creates, uh, market share opportunities, stickiness of customers, and growth. So I feel really good about it, and digital's continuing to ramp up strongly, and we think it will, you know, for several years to come.
Um, you know, our our initiatives, with our sales force and our customer excellence.
You know, we're getting better at better at uh, at serving customers consistently um, with our sales force, uh, getting out there and kind of driving new um, market share growth. And so we uh we feel good about that our private label initiatives, you know, allow us to be out there, you know, super competitive uh with good margins, um, you know, gaining market share.
And and then, you know, we're gaining market share and kind of adjacent.
Doug Black: I don't know, John, if you have anything to add to those. Those would be the big drivers of share gain.
Uh, product lines that where we don't have where we have very small share. Today, I would uh, point out the Synthetic Turf erosion control, you know, pest control on the agronomic side equipment, on the agronomic side, we still have product categories. Where we have, you know, our share is, is single digit in the market that we can penetrate. And uh, and we're taking advantage of those. So those would be the big ones. I don't know. John, if you have anything to add to those, those would be the big drivers of share game.
Ryan Merkel: That's really helpful. And then I just wanted to take a step back thinking about the industry structure. Immigration numbers into the US are down quite a bit, you know, the first half year under the new federal administration. I'm curious what you've been hearing from your customers in terms of any impacts they might be seeing. And how are you thinking about, you know, further intensification, if you will, of labor scarcity and how SiteOne's prepared for it?
That's really helpful.
I'm curious what you've been hearing from your customers in terms of any impacts, they might be seeing. And how are you thinking about, you know, further intensification, if you will of of Labor, scarcity, and and how cite 1's prepared for it?
Doug Black: Yeah. So, you know, we stay close to our customers on that issue. I'd say, you know, our customers have labor to get their work done, I think, is the punchline. And look, we've heard of various impacts of some of the deportation affecting customers here and there. But, you know, our customers are pretty agile, and you know, they can find workers in multiple ways. You know, we obviously work with the trade associations to attract, you know, folks to this industry. I think in the end, they're making through and finding the people that they need to get the work done. And just remember that this industry has been labor-constrained for several years, and obviously, that hit its peak during the COVID bump, if you will.
Doug Black: And with, you know, the market coming down and some of the softness of the market, it's taken some pressure off of labor scarcity, and some of these other issues have added to labor scarcity. But all in all, you know, our customers have what they need to go out and do the work. And we don't think that's a big limit on the market today. We think the, you know, the limit on the market today is the market demand.
Yeah. So, you know, um, we, we stay close to our customers on that issue. I'd say, you know, the the our customers have have Labor to to get their work done. I I think this is the, is the punch line. And look, we we've heard of various impacts of some of the deportation um, affecting customers here and there, but you know, our customers are are pretty agile and, you know, they can, they can, you know, find workers in multiple ways. Um, you know, we we obviously work with the the trade associations to attract you know, folks to this industry I think in the end they're they're making through and finding the people that they need to to get to work done. And just remember that this this industry has been labor constrained for for several years. And obviously that hit its peak during the co uh, bump. If you will.
And with, you know, the market coming down and some of the softest, some of the market has taken some pressure off of labor scarcity. And some of these other issues have added to labor scarcity. But all in all, you know, our customers have what they need to go out and do the work. And, uh, we don't think that's a big limit or.
On the market today, we think the, the, you know, the limit on the market today is the market demand.
Ryan Merkel: Understood. Appreciate your thoughts. Best of luck.
Understood. Appreciate your thoughts. Best of luck?
Doug Black: Thank you.
Operator: Next question, Stephen Volkman with Jeffries. Please go ahead.
Thank you. Next question. Stephen Volkman with Jeff freeze. Please go ahead.
David Manthey: Great. Good morning, guys. Doug, I wanted to go back to the focus branch initiative. I think you said 200 basis points. I assume that's kind of a year-over-year improvement. Is that the right pace to think about the next couple of years? And remind us the gap between those and kind of the rest of the company.
Doug Black: I'll let John handle this.
Great. Uh, good morning, guys. Um, Doug, I wanted to go back to the Focus Branch initiative. I think you said 200 basis points. Um, I assume that's kind of a year-over-year improvement; is that the right case to think about for the next couple of years? And remind us, what's the gap between those and kind of the rest of the company?
John Guthrie: Yeah. So the, we defined any branches or businesses underneath a 6% EBITDA was what on our focus branch improvement. You know, and probably the, if you will, the group was in low single digits. We think that is a reasonable assumption for kind of the growth going forward. Obviously, it comes in fits and starts, but you know, each year, some of the initiatives can be done in one year, quick turnaround. Some of them will take a few years. And I think we're in a good position to continue this for several years into the future.
I'll let John handle this. Yeah. So the, uh, um, uh, we, we defined any, um, branches or businesses underneath 6% of it, that was went on the, our our Focus Branch Improvement, uh, um, you know, and, and probably the, if you look the group, um, um, was in low single digits, um, we think that is, uh, um, uh, um, a reasonable assumption for kind of, uh, the growth going forward. Uh, um, uh, obviously, it'll, it comes in fits and starts, but, you know,
Each year, some of the initiatives. Um uh can be done in 1 year quick, turnaround. Some of them um will take will take a few years and and and I think we're in a good position to continue this um uh um for several years into the future.
David Manthey: Okay. Great. That's helpful. And then maybe just on the acquisition front, I can't remember if you've explained this, so I apologize, but why is it that the bigger deals are sort of on the back burner? Is there something about this environment that makes those folks want to hold off? Or just what's that dynamic that's driving that?
Okay great that's helpful and then maybe just on the acquisition front. Um, I can't remember if you've explained this, so I apologize. But why is it that the bigger deals are sort of on the back burner? Is there something about this environment that makes those folks want to hold off or just what's that? Dynamic, that that's driving that
Scott Salmon: Yeah, I think this is Scott. The main dynamic is just that really sellers decide when they're going to sell. You know, I guess there could be a dynamic that with the market softer, those bigger players see, you know, see that they've fallen perhaps more so over the last couple of years. But there's nothing in our... We still have a very strong pipeline of companies of all sizes. And you know, we feel really good about our position in the industry as the acquirer of choice. You know, we just hit our 100th acquisition in March. We're pleased with our M&A team and the relationships that we continue to build with companies of all sizes. So we would expect to continue to add companies of varying sizes, you know, for the rest of the year and for, you know, multiple years to come.
Uh, yeah, I think the this this is Scott, the main Dynamic is just that really sellers decide when they're going to sell. Um,
You know, I guess there could be a dynamic that with the markets softer. Those bigger players. See
it, you know, see that they've Fallen perhaps more more so over the last couple years. But uh, there's nothing that we still have a very strong pipeline of companies of all sizes. And, you know, we feel really good about um, our position in the industry as the acquirer of choice. You know, we we just hit our 100th acquisition in March. Um, we're pleased with our m&a team and the relationships that we continue to build with companies of of all sizes. So, we would expect to continue to add companies of of varying sizes, you know, for the rest of the year.
In for, you know, multiple years to come.
David Manthey: Okay. I guess that's kind of what I was trying to get at, Scott. Is it like, do we need to wait for the industry to improve a little before those things sort of re-accelerate? Or is this just maybe more random period of weakness? Or I don't want to say weakness, but lull.
Okay, I guess that's kind of what I was trying to get at Scott. Is it, like, do we need to wait for the industry to improve a little before those things sort of re accelerate or is this, just maybe more random period of weakness? Or, I don't want to say weakness, but, LOL,
Doug Black: I would describe it as a small sample size rather than a trend long-term with regards to the size of the deals.
I would describe it as a small sample size rather than a
Than a.
David Manthey: Yeah, I would back that up. It's really just timing. You know, deals fall like, like Scott. Sellers sell when they're ready to sell, not when we're ready to buy. And so, you know, you get some randomness as things fall, you know, fall into place and people come due. And I think.You're
Come up with regards to size of the the deals. Yeah, I would back that up. It's really just timing. You know, deals fall like like Scott Cellars.
sell when they're ready to sell, not when we're ready to buy and
Doug Black: just seeing that that trend. you know, we could have a a large one or a run of of kind of medium-sized ones come at us, just as easily as, you know, this one. But we know the ones that we're in more advanced discussions with. And so, you know, we can see that this year is going to be a lighter year than normal. It's likely to be balanced by a heavier year in the future. We don't know if that's next year or 2027 or whatever, but we know the the average size of deal in our kind of target group is is the same as it has been for the last, you know, kind of 10 years.
Don't fall into place, and people come do. And I think you're just seeing that trend. You know, we could have a large one or a run of kind of medium-sized ones come at us.
Uh just as easily as you know this 1 but we we know the ones that were in more advanced discussions with. And so you know, we can see that this year is going to be a lighter year than normal.
It's likely to be balanced by a heavy year in the future. We don't know if that's next year or do 20027 or whatever. But we, we know
the the to the average size of d o n are kind of
Target group is is the same as it has been for the last, you know, kind of 10 years.
Operator: Great. Yeah. Thank you so much. I'll pass it on.
Great. Yeah, thank you so much. I'll pass it on.
Operator: Next question. Matthew Boulay with Mark Leys, please go ahead.
Next question. Matthew Boule with Barclays. Please go ahead.
Operator: Good morning, everyone. Thank you for taking the questions. I wanted to ask on the new residential construction and market. You talked about, I guess, sort of softer trends, or I think you said down in 2H. I guess I just wanted to get a sense of if you could quantify sort of what you're tracking in new residential. Obviously, the end market's been kind of incrementally softening, and SiteOne, of course, historically has a bit of a lag to start. So obviously, it'd be helpful to kind of understand where you are in that cycle. And so just any more detail on how that's tracking for you. Thank you.
Uh, good morning everyone, thank you for taking the questions. Um, I I I wanted to ask on the, the new residential construction and Market. Um, you talked about, I guess, sort of softer Trends, or I think you said down in 2H. Um, I, I guess I just wanted to get a sense of if you could quantify, um, sort of what were your tracking in new residential? Obviously, the end Market's been kind of incrementally softening and and site 1, of course, historically has a bit of a lag to start. So it'd be helpful to kind of understand where you are in that cycle. And so just any more detail on how that's tracking for you. Thank you.
Doug Black: Yeah. Well, I would say it's, well, first of all, it's down more in those high-growth markets, right? And we mentioned, you know, Florida, Texas, Arizona, California, you know, some of those where the markets were hot, those would be down. If it's taken in total, we think, you know, single digits, you know, low single digits is probably where it's at. You know, it's kind of hard to gauge, but we think it would be, you know, kind of down, you know, low single digit would be our best guess at what we're facing market-wise when you take it in total across the US and Canada.
Yeah, well, I would say it's, um, well, first of all, it's it's down more in those high growth markets, right? And we mentioned, you know, Florida uh, Texas.
Arizona California. You know some some of those where the markets were were hot. Um those would be down if it taken in total.
We think, you know,
Single digits, you know?
Um, low low single digits.
I believe where it's at, you know, it's kind of hard to gauge.
but um, but we think
It would be, you know, kind of down.
You know, low single digit would be our best guess at what we're facing marketwise when you take it in to Total the the US and Canada.
Operator: Okay. Yeah. Got it. Understood. That's helpful. And then on price and inflation, I guess you're talking about grass, seed, and PVC kind of tracking where they are. I think you said grass seed could be down 10 to 20 for the year. So I don't know if that's maybe tracking to sort of like a 50 to 100 basis point headwind for the entire company. And so when you start thinking about getting back to positive price in Q4, I just wanted to make sure we're getting this right, that the kind of the rest of the portfolio and some of these products that are driven by tariffs here, I mean, are you looking at kind of mid-single-digit inflation or maybe low to mid-single-digit inflation on the rest of the portfolio? And I guess for those specific tariff-exposed products, you know, would it be higher than that?
Okay, yeah, got it understood, that's helpful. Um uh and then on on price and an insulation. Um, I guess we were talking about grass seed and PVC, um, kind of tracking where they are. I think you said grass seed could be down 10 to 20 for the year. Um,
So, I don't know if if that's maybe tracking to sort of like a 50 to 100 basis, point headwinds for the entire company. And so when you, when you start thinking about getting back to positive price, um in Q4 I I I just wanted to make sure we're getting this right? That that the kind of the rest of the portfolio and some of these some of these products that are driven by tariffs here. I mean are you looking at kind of mid single digit inflation or maybe low?
Operator: So yeah, just any kind of color on the rest of the product portfolio's inflation. Thank you.
John Guthrie: Yeah. In general, there were some we saw some price increases at the beginning of the year. And then, you know, specifically with with the tariff-related products, we saw, you know, really kind of May, June, some price increases with regards to, I think, lighting, irrigation probably were the areas where we saw the most of those increases. The increases in those, I would say, are mid to high single digit would be probably the average, probably more towards mid-single digit price increases. Our suppliers have been very thoughtful about, you know, their higher costs that they're paying and what they're passing on and what the what the market can withstand. But at the same time, you know, they are seeing higher costs because of the tariffs. So that's the general of what we're seeing.
Go to Mid single digit inflation on the rest of the portfolio and I guess for the specific tariff exposed products, you know, would it be higher than that? So, yeah. Just any any kind of color on the the rest of the the product portfolios inflation. Thank you. Yeah. In general, there was some, we saw some price increases in the beginning of the year and then, you know, um, specifically with, with the Tariff related products.
um, we saw, you know,
John Guthrie: I would say the numbers are less than headline numbers that we were seeing for a while there, you know, when you just saw, and it's primarily, you know, China, Southeast Asia, and Mexico are where the exposure is.
Really kind of made you. Um, um, some price increases with regards to those think, lighting irrigation probably, where the, where the areas where we saw. So, the most of the, those increases the increases in those I would say are mid to high single digit would be probably the, um, average. Probably more towards mid single digit. Um, uh, uh, uh, uh, I think 3 these are suppliers that have been very thoughtful about, you know, their higher costs that they're paying and what they're passing on and what what the uh what the market um uh can withstand but at the same time you know? Um uh, um, they are are seeing higher costs because of the tariffs so that that's that's the general I um, what we're saying I would say the numbers are less than headline numbers that we were seeing for a while there. You know when you just saw um uh um uh and it's primarily, you know, China. Um,
Doug Black: Yeah. One other factor to keep in mind is that seed, which right now, you know, PVC pipe is starting to lap itself some of the decreases. So the effect of PVC pipe has been going down as we've gone through the year. Seed took another leg down, and that's why it's going to be down further. But seed really goes the biggest seed month is September. You know, it's a third-quarter product. It does spill some into the fourth quarter. And so that's why we're saying pricing is going to be flat. It'll net out flat in the third quarter. By the fourth quarter, seed season is kind of passed. We don't sell a lot of seed. And now you've got the other products kind of kicking in. And that's why you get up 1 to 2 percent in the fourth.
We're saying pricing is going to be flat. It'll net out flat.
Doug Black: And then going into next year, obviously, seed will start to lap itself as we get to this time next year.
John Guthrie: Yeah. 70% of the seed, roughly a little over 70%, is sold in the second half of the year. And so, and you know, roughly a third of it is sold in the month of September.
In the third quarter by the fourth quarter seed, season is going to pass. We don't sell a lot of seed and uh, now you you've got the, you know, the other products kind of kicking in. And that's why you get up 1 to 2% in the, in the fourth. And then going into next year, obviously, you see people start to lap itself as we get to this time next year. So yeah, 70% of the seed roughly a little over 70%, is that sold at half of the year and so, um,
So and and you know, roughly a third of it is sold in the month of September.
Operator: Got it. Perfect. Really helpful color. Thanks, guys, and good luck.
Got it. Perfect. Really helpful caller. Thanks guys. And good luck.
Operator: Next question, Colin Varon with Deutsche Bank, please go ahead.
Next question, Colin Veyron with Joy.
The bank, please go ahead.
Operator: Morning. Thank you for taking my question and a great execution in a soft end market environment here. I guess I just wanted to touch on the new commercial market. You expect it to be flat for the year. Just any commentary on how it's trended in the first half of the year? And you referenced the weakness in the ABI. Just any thoughts on if and when you would expect that to start appearing in your backlog and maybe your thoughts on why that hasn't shown up yet?
Morning. Thank you for taking my question and a great execution, and a, a soft and mortgage environment here. Um, I guess I just wanted to touch on the new commercial Market. Uh, you expect it to be flat for the year, just any commentary in Hood's trended to in the first half of the year, and you reference the weakness in the TBI do any thoughts on this? And when you would expect at the start of hearing in your backlog and maybe your thoughts on why that hasn't shown up yet.
Doug Black: Yeah. So, you know, yeah, this is consistent with what we've seen in the first half, you know, flattish. You know, commercial tends to follow residential, and obviously, residential is dropping. And so, you know, logically, you would expect commercial to be down at some point in the future. And so we keep a close eye on it. We do. Our project services group does bidding for our customers in the commercial market. So they're bidding on all the commercial jobs, you know, that we were exposed to, which is abroad across the industry. They're still kind of slightly up, you know, and very slightly up in what they're bidding. And then when we talk to our customers, our customers have work, you know, through the rest of the year, but they do have smaller backlogs, right?
yeah, so um you know we yeah, it's this is consistent with what we've seen in the first half, you know, flat-ish
Um, you know, commercial tends to follow residential and obviously residential is dropping. And so, you know, logically, you would expect commercial to to, uh, be down at some point in the future. Um, and so we keep a close eye on it. We, we do our project Services Group, um, does bidding, um, for our customers, in the commercial market. So they they're bidding on all the commercial jobs.
Um, you know that that um that we were exposed to which is a broad across the industry, they're still kind of slightly up, you know, in very slightly up in what they're bidding. And then when we talk to our customers, our customers have work, um,
Doug Black: And you can tell in some of the high-growth markets, you know, some of the commercial markets are down. In some of those high-growth markets, it bounces across the country. So I guess we see clouds on the horizon with commercial, but we feel like it'll be flat through the rest of the year. And we'll see how it goes in the next year. You know, it's highly, I think, dependent on what happens in the new residential. But that's what we're seeing today.
You know, through the rest of the year but they they do have smaller backlogs.
Right. And and you can tell in some of the high growth markets. Um, you know some some of the commercial markets are down in some of those high growth markets.
Um, it bounces the country. So, we I guess we see clouds on the horizon with, uh, with commercial, but we feel like it'll be flat through the rest of the year and we'll see how it goes in the next year. Um, you know, it's highly, I think, dependent on what happens in the new residential.
But um, that that's what we're seeing today.
Operator: Great helpful color. And then I guess just on the declines in the new residential construction market, any thoughts on how that might impact sort of the maintenance growth that you can see out in 2026?
Great hope. We'll call her and then I guess just on the decline in the new residential construction Market. Any thoughts on how that might impact, sort of the maintenance growth that you can see out in 2026
Doug Black: Yeah. No, maintenance tends to be very steady, you know, despite, I mean, if you can imagine, maintenance is on the installed based. So what happens in the new build doesn't have a big effect on the maintenance market, both commercial and residential. And so maintenance is going to chug along very steady, tends to follow GDP. And that's a place where we have a lot of strength and a market where we're actually gaining, you know, if I had to say where we're gaining our most market share, it's probably in the in the maintenance category, not only in kind of core products, but also in some of those adjacent products like pest control equipment that I mentioned. So maintenance, good steady markets, 35% of our sales. And we luckily are very strong there, and we feel like we're gaining share in that part of the market.
Yeah, no maintenance tends to be very steady, You know, despite I mean, if you can imagine maintenance is on the installed based. So what happens in the new build, uh, doesn't have a big effect on the maintenance Market, both commercial and uh, residential. And so maintenance is going to chug along very steady tends to follow GDP,
Um, and and that's a, a place where we have a lot of strength.
And and the market where we're actually gaining. You know, if I had to say, where we're gaining our most market share, it's probably in the, in the maintenance category, um, not only in kind of core products, but also in some of those adjacent products, like pest control equipment that I mentioned. Um, so um, maintenance good steady markets, 35% of our sales. Um and we are luckily our very strong there and we feel like we're gaining share in that part of the market.
Operator: Great. I appreciate all the color.
Great. I appreciate all the callers.
Operator: Next question, Keith Hughes with Truist Securities, please proceed.
next question, can
You be true with Securities please.
Doug Black: Thank you. You had referred earlier in the call to, I think, about 200 basis points margin gain of the focus branches, the 140-odd focus branches. If you had to characterize, you know, a couple of buckets of what they're doing better, can you give us kind of a view on that?
Uh, thank you. Um, you referred earlier in the call to think about a 200 basis points margin gain of the focus. Branches are the 140-odd focus branches.
If you had a character characterized, you know, a couple buckets of what they're doing, better can give us kind of The View on that.
Doug Black: Well, I mean, first is where, you know, there's there's some change over the teams in those branches, right? I mean, invariably, the teams need to be strengthened. Also, just the customer excellence of those branches. Some of those branches have fallen off on how, you know, quite frankly, how well they serve customers. And that's part of the healing process, I guess, is to get them back up to, you know, world-class on serving their customers. That invariably turns into sales growth. So organic growth is part of it. And then I'd say finally, you know, just SG&A reduction, you know, those are some of the areas where we got got fat or got out of line with the market demand. And we had to, and certainly with Pioneer, there was a very large SG&A takeout to get them to the right level to serve the current market.
Well, I mean, first is we're, you know, there's some change over the teams and those branches, right? I mean, invariably, the teams need to be strengthened. Also, just the customer excellence.
Of those branches, some of those branches have fallen off on how, you know, quite frankly, how well they serve customers. And that's part of the, uh,
Part of the healing process, I guess, is to get them back up to, you know, world-class on serving their customers that invariably turns into sales.
And we had uh and certainly with Pioneer uh there was a very large uh sdna takeout to get them to the right level to serve.
Doug Black: John, anything to add to that? But I think.
John Guthrie: Well, I think it's really up and down the income statement where we're working and at a different spot.
Doug Black: Yeah.
Doug Black: Okay. Thank you very much.
The current market, um, John anything to add to that. But I think those, I think, I think you it's really up and down the income statement, where, where we're working, um, and, and at the difference about, yeah.
Okay, thank you very much.
Operator: Next question, Andrew Carter with Stifel, please go ahead.
John Guthrie: Hey, thanks. Good morning. I'm not sure if I caught it correctly, but in terms of gross margin for the year, did I hear that it's now expected to be slightly up? I know it was previously flat. And I'll start there.
Next question, Andrew Carter with stifel please go ahead.
Hey, thanks. Good morning. I'm not sure if I caught it correctly, but in terms of gross margin for the year, did I hear that it's now expected to be slightly up? I know it was previously flat, and I'll start there.
John Guthrie: I think Doug's comment was on the remainder of the year from that standpoint. We would expect it to be up slightly from that standpoint. Yeah. And in general, what you saw this quarter was pricing was a little bit stronger. We saw some benefit from acquisitions. And then, you know, some of the initiatives like private label specifically are contributing to the overall growth from that standpoint.
I I think Doug's comment was, was on the uh, uh, uh uh uh uh remainder of the year. Um uh from from that standpoint. Um uh we would we would expect it to be to be up slightly um uh uh uh from from from the from that standpoint. Yeah. Um and and in general, what you saw this quarter was um um pricing With A Little Bit Stronger. Um, we saw, um, some benefit from Acquisitions and then, you know, some of the, um, initiatives like private label specifically are are contributing to, to the overall growth.
John Guthrie: And does your guidance include any kind of inventory benefits from pricing? Actually, I'll step back. In 2Q, you've borne the cost of deflation in gross margin, but now you're starting to turn to pricing. Was it a net headwind or tailwind in 2Q? And then full year, does your is your guidance helped by it moving to a net benefit this year? Thanks.
From that standpoint.
John Guthrie: I think in general, pricing is not the headwind that it was last year. So I guess year over year, you would say that that's a positive from that standpoint.
And does your guidance include any kind of uh inventory benefits from pricing? Actually, I'll step back in 2 Q. You've you've borne the cost of deflation, in gross margin but now you're starting to turn to pricing. Was it a net headwind or Tailwind in 2q? And then full year, does your is your guidance helped by it moving to a net benefit this year? Thanks.
John Guthrie: Thanks, pass it on.
I think in general pricing is not the the the headwind that it was last year, so I guess year over year, you would say that that's a positive um from from that from that standpoint.
Thanks pass on.
Operator: Next question, Charles Perron-Picci with Goldman Sachs, please go ahead.
Next question, Charles Peron.
Scott Salmon: Thank you for taking my question. First, if I heard you correctly, I think your exposure to tariff is 10 to 15 percent of sales, but can you update your expectations on cost of sales across categories through the second half? And if you consider mitigation action different than pricing to offset those. And at the same time, are you seeing competitors taking a different approach to pricing in this environment?
Thank you for taking my question first. Um, if I heard you correctly, I think your exposure to tariff is 10, 15% of sales. But can you update your expectations on cost of sales across categories through the second half? And if you consider mitigation action different than pricing to offset those and at the same time, are you seeing competitors, taking a different approach to pricing in this environment?
John Guthrie: Could you repeat your first question?
Scott Salmon: Yes. Do you see any mitigation action different than pricing to offset some of the inflationary impact from tariffs?
Yes. Do you see any mitigation action different than pricing? Um, to offset some of the inflationary impact from Paris?
John Guthrie: Not really. I mean, I mean, we're obviously working on our gross margins. I mean, you're still having a net pricing impact across the board of less than 1% in the second half. So I think our manufacturers thoughtfully think about that. But in general, the whole market will pass through higher costs from the manufacturers and suppliers.
Uh, not really. I mean, I mean we're we're obviously working on our gross margins. I mean, you're still having a a net um, pricing impact across the board of of less than 1% in the and and the second half. So um I think our manufacturers uh um uh thoughtfully, think about that. But in general the whole Market will will pass through um a higher higher costs from the manufacturers and suppliers.
Doug Black: Yeah. In the second part of your question, are competitors taking a different tactic? No. I mean, our market is pretty rational about passing through, you know, manufacturer price increases. And so that's continued. I would say it's a competitive market. And in a competitive market, everybody fights for market share. And so, but that's been the case, you know, for the last 18 months. And so that hasn't changed. But we haven't seen any fundamental changes. You know, we're in a competitive market. We have to have a competitive price. With our size and scope, we can work with our, you know, manufacturing partners to make sure that everybody wins in the market.
In the second part of your question, there are competitors taking a different, uh, tactic. Um, no. I mean our...
our Market is pretty rational about passing through, you know, manufacturer
Uh, price increases and so that that's continued, I would say it's a competitive market and in a competitive market, everybody fights for market, share and so, but that's been the case.
just,
uh, months and uh, so that hasn't changed but we haven't seen any fundamental
Changes, you know, we're in a competitive market, we have to have competitive price.
Um with our size and scope, we can work with our, you know, manufacturing Partners to uh to make sure that everybody wins.
Uh, in the market.
Scott Salmon: No, that's very helpful color. And then second, it sounds like freight is becoming more an opportunity for savings over the coming quarters. Can you maybe expand on this opportunity and how big a contributor it could be over time?
No, that that's very helpful caller. Um and then second it sounds like Freight is becoming more an opportunity for savings over the coming quarters can you maybe expand on this opportunities and how big a contributor it could be over time?
Doug Black: Yeah. Well, I think our, you know, we worked hard over time on our kind of freight into our branches. And, you know, we're pretty dialed in there. And, you know, we continue to make, you know, some gains there. But our where we're really making the gains today is, you know, is the delivery to the customer from the branch. And we mentioned that that we have a large initiative on the efficiency. We put in a system dispatch track across our company several years ago, which allows us to, you know, track our trucks and and improve the accuracy of our deliveries, you know, to get hit time windows for our customers, etc. But now we're harvesting the benefits of, you know, more centralized delivery and getting the efficiency out of our delivery fleet. And so we expect to drive performance improvement there.
Yeah, well I think our, you know, we worked hard over time on our kind of freight into our branches.
And you know, we're pretty dialed in there and you know, we continue to make um, you know, some gains there. But our what we're really making the game today is that, you know, is the delivery to the customer from the branch. And we mentioned that that we have a large initiative on the efficiency. We, we put in a system dispatch track
across our company, several years ago which allows us to you know, track our trucks and
Doug Black: We mentioned kind of the 40 basis points on delivered sales that we were able to gain in the first half from our, you know, customer delivery. We expect to continue to gain, you know, benefit there as we go forward over the next two or three years and dial in our market delivery to the end customer.
More centralized delivery and getting the efficiency out of our, uh, delivery Fleet. And so we expect to to drive performance Improvement. There we mentioned, kind of the, the 40 basis points on delivered sales.
That we, uh, were able to gain in the first half, from our, you know, customer delivery we expect to continue to, uh, to gain. Um, you know, um, benefit there as we go forward over the next, uh, 2 or 3 years and dial, in our Market, delivery to the customer.
Scott Salmon: Okay. That's helpful color, Doug. And thanks for the time.
Okay, that's helpful color Duggan. Thanks for the time.
Operator: I would like to turn the floor over to Doug Black for closing remarks.
I would like to turn the floor over to Doug black for closing remarks.
Doug Black: Okay. Well, thank everybody for joining us today. We very much appreciate your interest in SiteOne. I want to thank our associates for all the great work they do to help us be a great company. I also thank our suppliers and our customers. It's been a, you know, we're very pleased with where we are and where we're going. And we look forward to speaking to you next quarter after the third quarter.
Okay. Well, thank you everybody.
Thank you for joining us today. We very much appreciate your interest in SiteOne.
Um, thank our Associates.
Scott Salmon: Thank you.
Uh, for all the great work they do to help us be a great company, I also want to thank our suppliers and our customers. It's been a, um, you know, we're very pleased with where we are and where we're going, and we look forward to speaking to you next quarter, um, after the third quarter.
Thank.
Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
You this concludes today's teleconference, you may disconnect your line at this time and thank you for your participation.