SiteOne Landscape Supply, Inc. Q4 FY2024 earnings call

In 2024, SiteOne achieved a 6% net sales growth with an organic daily sales decline of 1% offset by a 7% growth from acquisitions. Organic sales volume grew by 2% throughout the year with improving trends across the quarters. Pricing in 2024 declined by 3%, primarily driven by double-digit declines in PVC pipe and grass seed. Gross profit increased by 5% but the gross margin decreased by 30 basis points to 34.4%. The SG&A as a percentage of net sales increased by 130 basis points to 30.5% due to acquisitions. The adjusted EBITDA in 2024 decreased by 8% to $378.2 million. For 2025, SiteOne expects price deflation to continue normalizing, with price decreases in PVC pipe offset by price increases in other product lines. The end markets show steady demand though the macro environment remains uncertain. In 2024, seven companies were added with $200 million in trailing 12-month revenue and the first acquisition of 2025 was made in January. The integration of Pioneer was completed in the fourth quarter of 2024 with opportunities for SG&A reduction.

In the fourth quarter of 2024, SiteOne reported net sales increased by 5% to $1.01 billion. For the full year 2024, net sales grew by 6% to $4.54 billion. Organic daily sales in the fourth quarter saw a 1% increase compared to the prior year, driven by a 4% growth in volume, partially offset by a 3% price deflation. For the full year, organic daily sales decreased by 1% due to a 3% price deflation, partially offset by a 2% volume growth. Agronomic products (including fertilizer, control products, ice melt, and equipment) experienced an organic daily sales increase of 6% in the fourth quarter and 4% for the full year. Landscaping products (including irrigation, nursery, hardscapes, outdoor lighting, and landscape accessories) had an organic daily sales decrease of 1% in the fourth quarter and 3% for the full year due to price deflation and weaker demand. Acquisition sales contributed approximately $43 million or 4% to net sales growth in the fourth quarter and $286 million or 7% for the full year 2024.

SiteOne expects prices to be flat to down by 1% in 2025. New residential construction is roughly flat, new commercial construction is steady, the repair and upgrade market is flat to slightly down, and the maintenance market is expected to have steady growth. It is anticipated that sales volume will more than offset price deflation, resulting in low single-digit organic daily sales growth for the full year 2025. The gross margin is expected to be higher than in 2024. The adjusted EBITDA for fiscal 2025 is expected to be in the range of $400 million to $430 million.

Risks include macro uncertainties such as interest rates, potential tariffs, and labor supply. The price deflation of grass seed continues to be a factor. There are concerns regarding customer labor supply issues, with no significant impacts seen yet but expected to be monitored. The price deflation of PVC pipe and grass seed still has an impact.

Q: Regardless of market demand and pricing and acquisitions and everything, are the focus branches and Pioneer the most impactful cost initiatives on the docket for 2025? And if so, is there any way you can dimensionalize the impact of those two efforts in a vacuum?

A: Doug Black and John Guthrie discussed that focus branches and Pioneer are significant cost initiatives, with most margin improvement expected from SG&A leverage from these initiatives.

Q: A couple of the risk factors would be, it sounds like grass seed is still a factor and then labor supply of your customers. Are you hearing anything from your customers already about intensifying labor issues? And then, I don't know if you have a Clarence Speaks type preview on the grass seed market, but either of those factors or both, will we not know what those look like until we get into the season or are you starting to see some initial signs?

A: Doug Black said no significant impact seen yet, but early in the year and may see impact in spring. John Guthrie said grass seed deflation impact will be known more in spring.

Q: You mentioned that tariffs are not factored into your guidance. Could you just give us a sense for how much of your product is coming out of China and Mexico? And you also said that industry would likely pass through this price. Would you expect to be able to do that relatively quickly, or could there potentially be some lag in terms of raising your sales prices versus your inventory cost?

A: John Guthrie said generally pass through prices quickly, estimated 10%-15% of sales sourced from Mexico, China, and Canada.

Q: California is an important state for you. And there's been the devastating wildfires out there. I was wondering if that's something that you're seeing an impact on your business to date and just your thoughts on any potential near term as well as longer term implications for your business?

A: Doug Black said impact on business has been marginal, minor headwind in short term, long term benefit from rebuilding.

Q: You had talked earlier about some of the branch rationalization. I think it was $4.5 million that affected fourth quarter EBITDA. I just want to make sure that's correct. And I assume that's something that doesn't reoccur in 2025?

A: John Guthrie confirmed $4.5 million was one-time charge for branch closures, not expected to repeat in 2025.

Q: Curious if you can provide a little bit more detail relative to the focus stores and also what you're doing with Pioneer. Certainly appreciate closing locations, that's sort of obvious. But what do you do in the rest of the stores to get those margins up to the corporate average and how long do you think that takes?

A: Doug Black and John Guthrie discussed integration of Pioneer, right-sizing staffing and trucking, focus on leadership and product mix for focus branches, expecting multi-year improvement with significant benefit in 2025 and beyond.

Q: You bought back, I think, $30 million in stock in the quarter. And you're sort of, I guess, the stock's kind of trading at the low end of its recent range. Is there any chance that you kind of focus a little bit more on buybacks versus M&A, given the stock price where it is?

A: John Guthrie and Doug Black said number one focus is growing the business and investing in M&A, with share repurchases considered after investment in business.

Q: Good morning. Thank you for taking my question. First, it's great to see that commercial initiatives are coming through and are expected to drive further market share gains in 2025. Can you maybe unpack some of the initiatives supporting that between Partners Program, Private Label, and others? And where do you see the biggest opportunity for further share gains this year and beyond?

A: Doug Black discussed initiatives like small customer growth, Hispanic marketing, private label products, growth in product categories, Salesforce CRM, and digital sales as drivers of market share gains.

Q: Good morning, everyone. Thank you for taking the questions. I wanted to ask about the price increases you mentioned on some of the finished goods and the timing around all that. I guess kind of now here in mid-February, have you started to pass through any of those price increases yet on the finished goods? Or I guess typically, kind of when would these non-commodity price increases begin to flow through for SiteOne?

A: John Guthrie said pricing is being rolled out and will be in by mid-February.

Q: Hi. This is Chris on for Mike. Just going back to the pricing this quarter, you guys saw a down three in the price. So I was hoping if you guys maybe give a little more color on what you expect pricing to look like for the course of the year? Should we expect similar magnitude of decline in the first half and improving in the second and then within your flat-to-down slightly guide. Could you break out specifically what you're assuming for commodity deflation and what you're expecting to pass through on non-commodity?

A: John Guthrie said expected price deflation around negative 2% in Q1, moving to negative 1% in Q2, slightly positive in second half, with commodity deflation and non-commodity price increases.

Q: Hi, thanks for taking my questions today. So it sounds like你 saw a nice sequential improvement in repair and upgrade demand during the fourth quarter. I just wondered if you could provide any more details on how demand and bidding activity has trended. And what gives you confidence that in-market demand will be flat next year, or this year?

A: Doug Black said repair and upgrade demand stabilized from first half to second half of 2024, expecting flat to slightly down in 2025.

Q: The M&A pipeline, sounds robust after another strong year of acquisitions. Have you seen any significant changes in seller expectations as you progress through last year, if things remain largely pretty status quo in the industry?

A: Doug Black said seller expectations remain pretty status quo, with strong pipeline and expected to continue adding companies in 2025 and beyond.