Another Solid Quarter For SiteOne Landscape Supply
SiteOne Landscape Supply (NYSE: SITE) is a great company supported by secular trends and growing its business. Not only is the company exhibiting solid organic demand driven by home-improvement and homebuilding trends but it is steadily adding new locations to its umbrella and driving sustainable growth. The Q1 results prove the business model is working and point to double-digit shareholder gains over the next several quarters.
“With favorable demand across all regions and product lines, we achieved record Organic Daily Sales growth and excellent operating leverage resulting in strong EBITDA growth. Additionally, we have added four new high-performing companies to the SiteOne family, while continuing to invest in our commercial and operational initiatives …” said Doug Black, SiteOne’s Chairman and CEO.
SiteOne Churns Out Surprise Profit
If you need evidence the home-improvement, yard-scaping, and homebuilding trends carried their momentum through the winter look no further than SiteOne’s Q1 results. The Q1 period is a historically slow period for the company and yet it was able to grow revenue by double-digits and deliver a surprise profit. The $650.2 million in net consolidated revenue is up 41.4% from last year and beat the consensus by 1800 basis points on strong organic demand. The company reports 32% organic growth coupled with 7% acquisitional growth that will be augmented again in the current quarter. Two acquisitions just closed meaning their results will be accretive to the bottom line for the next reporting period.
The company reported some upward price pressure to margins but was able to mitigate those costs. In total, the gross margin shrank a mere 0.10% and will likely hold steady as we expect to see price increases for the company’s wholesale and retail goods very soon. The good news is that revenue strength and spending discipline allowed the company to leverage SG&A expenses by 670 basis points. The 29.5% gross margin led to a 610 basis point improvement in adjusted operating margin and a substantial beat on the bottom line. The $0.16 in GAAP earnings beat the consensus by $0.65 and in turn led to upwardly revised guidance.
The SiteOne guidance is more than robust in that it is calling for double-digit growth, is well above the previous range, and we think cautious. The company is calling for adjusted EBITDA in the range of $300 to $320 million for the fiscal year or up 15% to 23% compared to up roughly 5% to 10% in the previous guidance. Perhaps the best news is in regards to the cash flow, however. The company has been able to pay down its already low amount of debt even while buying new locations and reduced its load by half. The leverage ratio at the end of the quarter was less than 1.25X earnings and may go lower before the end of the year.
“Sales continued to be strong in April and we are pleased with the momentum in our business as we approach the tougher comparable sales from last year … though we expect our growth this year to moderate significantly in the second half, we believe the underlying market trends will remain positive … “ CEO Doug Black continued.
The Technical Outlook: SiteOne Scales New Peak
Shares of SiteOne are trading at a scary 60X earnings but the company is growing is like made, is supported by secular trends, and the technicals are bullish so we aren’t going to argue. While we’d prefer to see this stock trading at a lower multipole the earnings strength begs an increase to the consensus estimate that will bring the multiple down at least a little. Other than that, this chart looks bullish with price action moving up to new highs and supported by the indicators. The indicators are both showing bullish crossovers in conjunction with the new high that suggests strength in the market.
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