SiteOne Landscape Supply, Inc. — FY2022 Form 10-K
Business context and reporting period. SiteOne is a wholesale distributor of landscape supplies, serving professional landscape contractors through more than 630 branches in the U.S. and Canada. This 10-K covers the 52-week fiscal year ended January 1, 2023; the fourth quarter also ended January 1, 2023. FY2021 was 52 weeks and had one additional selling day. The company reports as one operating segment.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $4,014.5 million | $3,475.7 million | +16% |
| Gross profit / margin | $1,421.5 million / 35.4% | $1,212.6 million / 34.9% | +17% / +0.5 percentage points |
| SG&A / % of sales | $1,097.0 million / 27.3% | $900.6 million / 25.9% | +22% / +1.4 percentage points |
| Operating income / margin | $333.1 million / 8.3% | $313.7 million / 9.0% | +6% |
| Net income / diluted EPS | $245.4 million / $5.36 | $238.4 million / $5.20 | +3% / +3% |
| Adjusted EBITDA | $464.3 million | $415.1 million | +12% |
| Cash from operating activities | $217.2 million | $210.8 million | +$6.4 million |
Fourth quarter
- Net sales were $890.0 million, up 11% from $805.2 million. Gross profit was $302.6 million; gross margin was approximately 34.0%, versus approximately 35.1%.
- Net loss was $0.9 million, compared with net income of $27.5 million; diluted EPS was $(0.02), versus $0.60. Adjusted EBITDA was $38.9 million, versus $61.8 million.
- SG&A was $304.6 million. Seasonality is significant: the company typically records its strongest sales and earnings in the second and third quarters.
Liquidity, debt and capital allocation
- At January 1, 2023, cash and cash equivalents were $29.1 million; working capital was $759.5 million, up from $615.9 million a year earlier.
- Gross long-term debt was $356.1 million, compared with $260.2 million; finance lease obligations were $58.7 million, excluding interest. The ABL facility had $100 million drawn and $487.4 million of available borrowing capacity. The company reported compliance with debt covenants.
- Operating cash flow was $217.2 million. Investing activities used $284.4 million, including $244.9 million for acquisitions and $27.1 million of capital expenditures. Financing activities provided $43.4 million.
- The board authorized up to $400 million of share repurchases. In FY2022, the company repurchased 211,110 shares for $25.0 million at an average $118.40 per share; $375.0 million remained authorized at year-end. No dividend is expected for the foreseeable future.
Material changes and management commentary
- Organic Daily Sales grew 11%; management estimated price inflation contributed approximately 18% to that growth, while sales volume declined year over year. Acquisitions added $186.8 million, or 5%, to net sales growth. The company completed 16 acquisitions and added 48 locations.
- Gross margin improved through supplier programs, acquisitions, strategic inventory purchases and supply-chain initiatives. However, SG&A grew faster than sales amid growth-related costs, inflation and acquisitions, reducing operating margin to 8.3% from 9.0%.
- Management expects challenging conditions and softer markets in 2023, citing inflation, rising interest rates, labor constraints and possible weakness in residential construction. It expects low-single-digit product price inflation in FY2023, mostly in the first half, and capital expenditures of 0.7%–1.2% of net sales. No numerical sales or earnings guidance is provided.
- Inventory increased to $767.7 million from $636.6 million, reflecting acquisitions, cost inflation and deliberate safety-stock increases to address supply disruptions. Management said it was working to reduce excess inventory.
Risks, contingencies and unusual items
- Key risks include seasonal and weather-sensitive demand, housing and construction cyclicality, inflation and pricing pressure, supply-chain interruptions, labor availability, inventory risk, customer credit losses, acquisition integration and competition.
- Variable-rate borrowings expose the company to higher interest expense; management estimated a one-percentage-point rate increase would add approximately $1.1 million to projected FY2023 interest payments on unhedged debt. Interest-rate swaps provide partial protection.
- Purchase obligations included $125.0 million for nursery products and grass seed, with expected payments of $77.9 million in 2023. The company also disclosed fertilizer-volume commitments and operating and finance lease obligations.
- The company recorded a $3.9 million environmental remediation liability related to former LESCO manufacturing assets, with a $1.5 million indemnification asset and stated exposure capped at $2.4 million. No material litigation was reported; management did not expect ordinary-course claims to have a material effect.
- The filing discusses a July 2020 ransomware attack and continuing cybersecurity risks. Management reported no material adverse COVID-19 impact on FY2022 results. The financial statement audit and internal-control audit received unqualified opinions; management and the auditor concluded internal control over financial reporting was effective, though specified recent acquisitions were excluded from the control assessment.
Important facts for investors to verify
- Whether sales and earnings growth can continue as price inflation moderates and management anticipates softer markets and lower volume.
- Whether elevated inventory can be reduced without material markdowns, write-downs or lost sales, and whether gross margin holds as pricing benefits normalize.
- How acquisition spending, integration and goodwill/intangible-asset valuations affect returns; FY2022 acquisition purchase price was $248.7 million, including $95.8 million of customer-relationship intangibles.
- Debt, working-capital and interest-rate exposure, including the use of ABL borrowings and the conditions attached to available capacity and capital returns.
- Progress against 2023 price-inflation and capital-expenditure expectations, and any subsequent developments in supply availability, residential construction, environmental remediation or cybersecurity.