SiteOne Landscape Supply, Inc. — Q3 2021 Form 10-Q
Business context and reporting period
SiteOne is a wholesale distributor of landscape supplies and related services, operating more than 590 branches. This unaudited filing covers the 13 weeks ended October 3, 2021, and the nine months ended that date; comparisons are to the corresponding 2020 periods. Sales are seasonal, typically strongest in the second and third quarters.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $936.4 million | $751.9 million | $2,670.5 million | $2,029.4 million |
| Gross profit / margin | $340.5 million / 36.4% | $250.1 million / 33.3% | $930.2 million / 34.8% | $679.0 million / 33.5% |
| Operating income / margin | $103.4 million / 11.0% | $68.6 million / 9.1% | $278.4 million / 10.4% | $157.6 million / 7.8% |
| Net income / diluted EPS | $80.0 million / $1.74 | $48.2 million / $1.08 | $210.9 million / $4.61 | $109.8 million / $2.52 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $159.4 million | $180.7 million |
Q3 sales rose 25% and nine-month sales rose 32%. Organic Daily Sales increased 15% and 22%, respectively; acquisitions contributed about 10% of sales growth in each comparison. Management attributed organic growth to continued investment in outdoor living and price inflation. Q3 gross margin expanded 310 basis points; nine-month margin expanded 130 basis points. Management cited supply-chain initiatives, favorable pricing, and higher supplier incentives. SG&A rose 28% in Q3, including variable compensation, but declined as a share of nine-month sales to 24.5% from 25.9% on operating leverage and expense discipline.
Liquidity, cash flow, and debt
At October 3, 2021, cash was $158.0 million, working capital was $715.2 million, and total assets were $2,151.8 million. Long-term debt was $322.4 million net of issuance costs and discounts ($328.6 million gross); finance lease liabilities were $44.0 million. ABL borrowings were zero, with $364.1 million available. The company reported total available liquidity of $522.1 million. The new $325 million term loans mature in March 2028 and bore interest at 2.50% at quarter-end; the ABL facility matures in February 2024. The company reported compliance with applicable debt covenants.
Nine-month operating cash flow fell to $159.4 million from $180.7 million, primarily because receivables and inventory increased to support sales growth. Investing cash outflow was $97.3 million, including $24.2 million of capital expenditures and $71.1 million for acquisitions. Financing cash inflow was $40.6 million. Cash increased $102.8 million from the start of the fiscal year.
Material changes, outlook, and risks
- Net income nearly doubled in the nine-month comparison, driven mainly by higher sales and improved gross margin. Interest and other non-operating expense declined to $14.1 million from $21.9 million.
- Product, logistics, and commodity cost inflation continued. Management said it was responding to these pressures, but noted risks from supply, transportation, and logistics constraints and an inability to fully pass cost increases through to customers.
- SiteOne completed multiple acquisitions during 2021 for an aggregate purchase price of $71.1 million, adding locations and product capabilities. Integration and acquisition execution remain relevant risks.
- Management expected operating cash flow and ABL availability to fund operations, expected capital expenditures, and debt service for the next 12 months. No specific earnings or sales guidance was provided in the filing.
- COVID-19 had no material adverse impact on results for the reported periods, according to management, but its future effects remained uncertain. Other stated risks include seasonality and weather, construction-market cyclicality, labor costs and availability, supplier and inventory risks, interest rates, and substantial indebtedness.
- The company recorded a $4.0 million environmental remediation liability, partly offset by a $1.6 million indemnification asset; its stated exposure is capped at $2.4 million. It reported no material litigation currently pending.
Important facts for investors to verify
- How much of sales growth reflects underlying volume and mix versus price inflation and acquisitions.
- Whether improved gross margins and SG&A leverage persist as product, freight, labor, and other costs change.
- Whether seasonal inventory and receivables convert to cash; nine-month operating cash flow declined despite higher earnings.
- Debt terms, interest-rate exposure, swap treatment, covenant compliance, and the availability of the ABL borrowing base.
- Acquisition integration progress and the returns generated on acquisition and capital spending.
- Potential effects of supply-chain disruption, weather, labor availability, and COVID-19 developments on operations and demand.