SiteOne Landscape Supply, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023 (52 weeks), compared with the 52 weeks ended January 1, 2023. The filing also reports fourth-quarter results. Amounts are in U.S. dollars; financial figures below are in millions unless stated otherwise.
Business context
SiteOne is a wholesale distributor of landscape supplies, operating 699 branches across 45 U.S. states and six Canadian provinces at year-end. Its customers are primarily landscape professionals. The company reports one operating and reportable segment. Fiscal results are seasonal, typically strongest in the second and third quarters.
Financial results
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $4,301.2 | $4,014.5 | +7% |
| Gross profit / margin | $1,491.2 / 34.7% | $1,421.5 / 35.4% | +5% / −70 bps |
| SG&A | $1,256.6 | $1,097.0 | +15% |
| Operating income / margin | $250.3 / 5.8% | $333.1 / 8.3% | −25% |
| Net income / diluted EPS | $173.4 / $3.80 | $245.4 / $5.36 | Net income −29% |
| Adjusted EBITDA | $410.7 | $464.3 | −12% |
| Operating cash flow | $297.5 | $217.2 | +$80.3 |
Sales growth was primarily acquisition-driven: acquisitions contributed $278.7 million to reported growth. Organic Daily Sales were flat; agronomic products declined 4%, while landscaping products grew 1%. Commodity price deflation reduced Organic Daily Sales by less than 1% for the year. SG&A rose to 29.2% of sales from 27.3%, reflecting acquisitions and cost inflation. Lower gross margin and higher SG&A drove the decline in operating income and net income.
Fourth quarter: Sales were $965.0 million versus $890.0 million a year earlier. Gross profit was $326.6 million; operating loss was $1.9 million and net loss was $3.4 million, compared with breakeven operating income and a $0.9 million net loss in Q4 FY2022. Adjusted EBITDA was $39.9 million versus $38.9 million.
Cash, debt and liquidity
- Year-end cash and cash equivalents were $82.5 million, up from $29.1 million. Working capital was $827.0 million, up $67.5 million.
- Operating cash flow was $297.5 million. Investing activities used $226.0 million, including $192.7 million for acquisitions and $32.1 million in capital expenditures. Financing activities used $18.3 million.
- Gross long-term debt was $379.0 million, versus $356.1 million a year earlier; the balance-sheet carrying amount was $372.9 million after debt costs. Finance lease obligations, excluding interest, were $91.6 million. The filing states ABL availability of $578.2 million at year-end, after taking account of revolver borrowings and letters of credit.
- Term loans mature in March 2028 and the ABL facility in July 2027. Year-end interest rates were approximately 7.47% on term loans and 6.70% on ABL borrowings. Management estimates a one-percentage-point rate increase would add about $1.9 million to projected FY2024 interest payments on unhedged variable-rate debt.
- Management expects cash, operating cash flow and available ABL capacity to fund operations and expected requirements for the next 12 months. The company repurchased 90,000 shares for $12.0 million during FY2023; $363.6 million remained under its $400 million authorization. It does not expect to pay dividends in the foreseeable future.
Changes, outlook and risks
- Management expects elevated interest rates, tighter financial markets, weaker consumer spending, residual inflation and deflation in selected commodities to pressure sales growth and net income in 2024. It expects prices to decline 1%–2% for FY2024, with the deflationary trend continuing before moderating in the first half of the year.
- Management cites a long-term favorable industry outlook, supported by population and housing demand and interest in outdoor living, and plans to pursue organic growth, acquisitions, market-share gains and margin expansion. Expected FY2024 capital expenditures are 0.8%–1.4% of net sales.
- FY2023 included 11 acquisitions with aggregate purchase price of $195.7 million. The company says it invested $444.4 million in 27 acquisitions since the start of FY2022. Acquisitions added $75.4 million of goodwill in FY2023; purchase-price allocations for some 2023 deals remained preliminary.
- Management reported that unusually cold and rainy weather, including exceptional California precipitation, limited first-quarter demand. Principal exposures include construction cyclicality, weather and climate, commodity prices, operating-cost inflation, inventory, supplier availability, customer credit, labor, acquisition integration, environmental regulation and cybersecurity.
- The company recorded a $3.9 million environmental remediation liability related to former LESCO manufacturing assets, with a $1.5 million indemnification asset and company exposure capped at $2.4 million. It reported no material litigation expected to have a material effect and was in compliance with debt covenants at year-end.
- The auditor gave an unqualified opinion on the financial statements and internal control over financial reporting. The audit’s critical audit matter was valuation of acquired customer-relationship intangible assets, including management’s discount-rate assumptions. Newly acquired businesses representing approximately 3% of FY2023 sales were excluded from management’s internal-control assessment.
Most important facts for investors to verify
- Whether FY2024 price deflation, softer end-market demand and cost inflation develop as management expects, and whether margins stabilize or improve.
- How much reported growth and future earnings depend on acquisitions, and whether acquired businesses deliver expected returns and integration benefits.
- Cash generation, seasonal working-capital needs, ABL availability and compliance with debt covenants; also assess variable-rate exposure and debt maturities.
- Whether acquisition accounting estimates, especially customer-relationship valuations and goodwill, remain supportable as operating conditions change.
- Potential environmental remediation costs, inventory write-downs, customer credit losses and weather-related impacts.