Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SiteOne Landscape Supply Inc reported an 8% net sales growth in the first quarter, driven by organic daily sales growth and acquisitions.
- The company successfully integrated 16 companies in the previous year, showcasing strong capabilities in managing and integrating new acquisitions.
- SiteOne Landscape Supply Inc continues to expand its market presence and product lines through strategic acquisitions, adding two high-performing companies in April.
- Despite commodity price deflation, the company achieved organic sales volume growth of 5%, indicating effective market share gains and robust demand management.
- SiteOne Landscape Supply Inc maintains a strong balance sheet with significant liquidity, ensuring readiness for ongoing investments and acquisitions.
Negative Points
- The company experienced a 47% decline in adjusted EBITDA for the quarter, with a 250 basis point decrease in adjusted EBITDA margin.
- Persistent commodity price deflation led to a temporary negative impact on organic daily sales growth, gross margin, and adjusted EBITDA margin.
- Gross profit increased by only 5% due to ongoing price deflation in commodity products, which continues to pose a near-term challenge to gross margin.
- SG&A expenses as a percentage of net sales increased by 140 basis points, driven by acquisitions and a significant increase in healthcare costs in the base business.
- The company recorded a net loss of $90.3 million for the first quarter of 2024, attributed to higher SG&A and reduced gross margin, despite an increase in net sales.
Q & A Highlights
Q: Could you provide some context on the first quarter miss relative to the Street, particularly regarding SG&A and price deflation?
A: John T. Guthrie, Executive VP, CFO & Assistant Secretary, explained that SG&A was largely in line with expectations, factoring in acquisitions. Unexpectedly higher health insurance claims contributed to the costs. Price deflation was slightly more persistent than anticipated, particularly with PVC Pipe, but is expected to stabilize as the year progresses.
Q: How do you expect gross margins to trend in the second quarter and what are the drivers?
A: John T. Guthrie mentioned that gross margins should be closer to flat compared to the 100 basis points decline seen in the first quarter, driven by normal seasonal increases and the annual price adjustments already factored into their models.
Q: Can you comment on April trends and expectations for the rest of the year?
A: CEO Doug Black noted that April started weak but improved throughout the month. The company maintains a positive outlook for low single-digit organic growth for the full year, expecting volume growth to offset the anticipated 2% price decline.
Q: What impact do you foresee from the acquisition of your largest competitor by Home Depot on your business and M&A activities?
A: Doug Black does not anticipate significant changes in competitive dynamics, as the competitor has been aggressive in the market for years. He believes SiteOne's focus on landscaping and strong relationships in the industry provide an advantage in M&A activities.
Q: Regarding SG&A leverage, when might we start seeing improvements?
A: John T. Guthrie indicated that SG&A leverage would likely be more apparent in the second half of the year, although there might be slight leverage as early as the second quarter.
Q: How does the recent acquisition of Devil Mountain fit into your financial expectations for the year?
A: John T. Guthrie clarified that while the EBITDA from Devil Mountain is included in their guidance, the full impact on gross margin and SG&A has not been fully factored in yet. CEO Doug Black added that Devil Mountain would run as a high-margin, high-SG&A business, contributing positively to SiteOne's performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
