SiteOne Landscape Supply, Inc. (SITE) Q1 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to SiteOne Landscape Supply First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Elema, Chief Financial Officer. Thank you. You may begin.

Thank you, and good morning, everyone. We issued our first quarter 2026 earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website at investors.siteone.com. I am joined today by Doug Black, our Chairman and Chief Executive Officer; and Daniel Lafon, SVP, Strategy and Development. Before we begin, I would like to remind everyone that today's press release, slide presentation and the statements made during this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission. Additionally, during today's call, we will discuss non-GAAP measures which we believe can be useful in evaluating our performance. A reconciliation of these measures can be found in our earnings release and in the select presentation. . I would now like to turn the call over to Doug Black.

Thanks, Eric. Good morning, and thank you for joining us today. We are pleased with our first quarter 2026 performance as we overcame the weather and market-related softness in sales volume and delivered 14% adjusted EBITDA growth compared to the prior year period with meaningful gross margin expansion and tight SG&A management. Furthermore, during the quarter, we acquired Reinders, a strong fifth generation market leader in irrigation, agronomics and landscape lighting in the Midwest, which will contribute to our growth this year. We have seen volumes improve in April with the oncoming of the delayed spring season. However, with the recent increase in macroeconomic uncertainty, we believe that our end markets could continue to be soft this year. On the other hand, we expect pricing to be stronger which will benefit organic sales growth and gross margin expansion. With the benefit of our commercial and operational initiatives, we remain confident in our ability to gain market share and expand our EBITDA margin in 2026. Coupled with a solid pipeline of potential acquisitions, we believe that we are well positioned to deliver solid performance and growth for our shareholders in 2026 and in the years to come. I will start today's call with a brief overview of our unique market position and our strategy, followed by the highlights from the first quarter. Eric will then walk you through our first quarter financial results in more detail and provide an update on our balance sheet and liquidity position. Daniel Laughlin, will discuss our acquisition strategy, and then I will come back to address our outlook and guidance for 2026 before taking your questions. As shown on Slide 4 of the earnings presentation, we have a strong footprint of more than 680 branches and 5 distribution centers across 45 U.S. states and 5 Canadian provinces. We are the clear industry leader approximately 3x the size of our nearest competitor, we estimate that we only have about a 19% share of very fragmented $25 billion wholesale landscaping products distribution market. Accordingly, our long-term opportunity to grow and gain market share remains significant. We have a balanced mix of business with 66% focused on maintenance, repair and upgrade, 20% focused on new residential construction and 14% on new commercial and recreational construction. The only national full product line wholesale distributor in the market, we also have an excellent balance across our product lines as well as geographically. Our strategy to fill in our product lines across the U.S. and Canada, both organically and through acquisition further strengthens this balance over time. Overall, our end market mix, broad product portfolio and geographic coverage offers multiple avenues to grow and create value for our customers and suppliers while providing important resilience in softer markets. Turning to Slide 5. Our strategy is to leverage the scale, resources functional talent and capabilities that we have as the largest company in our industry, all in support of our talented, experienced and entrepreneurial local teams to consistently deliver superior value to our customers and suppliers. We've come a long way in building SiteOne and executing our strategy, but we have more work to do as we develop into a world-class company. The current challenging market conditions require us to adopt new processes and technologies faster and to be even more intentional in driving organic growth, improving our productivity and mastering the unique aspects of each of our product lines. Accordingly, we remain highly focused on our commercial and operational initiatives to overcome near-term headwinds, but more importantly, to build a long-term competitive advantage for all our stakeholders. These initiatives are complemented by our acquisition strategy, which fills in our product portfolio, moves us into new geographic markets and adds terrific new talent to SiteOne. Taken all together, we expect our strategy to create superior value for our shareholders through organic growth, acquisition growth and EBITDA margin expansion. On Slide 6, you can see our strong track record of performance and growth over the last 10 years with consistent organic and acquisition growth. From an adjusted EBITDA margin perspective, we benefited from extraordinary price realization due to rapid inflation in commodity products during 2021 and '22. In 2023 and 2024, we experienced significant headwinds as commodity prices came down. In 2024, we also experienced further adjusted EBITDA dilution and from the acquisition of Pioneer, a large turnaround opportunity with great strategic fit and from our other focus branches, which resulted from the post-COVID market headwinds. In 2025, pricing improved from a 3% decline in 2024 to flat, and we achieved excellent progress with Pioneer and our other focus branches both of which contributed significantly to our improvement in adjusted EBITDA margin despite the soft end markets. In 2026, we expect pricing to be up 2% to 3%, and we expect to continue achieving improvements with our focus branches. Accordingly, with the benefit of our other commercial and operational initiatives, we expect to continue expanding our adjusted EBITDA margin despite the continued market softness. For the longer term, we believe that we have significant room to improve our adjusted EBITDA margin as we execute our strategy and reach our full potential as a business. We have now completed 108 acquisitions across all product lines since the start of 2014, adding approximately $2.2 billion in trailing 12-month sales to SiteOne, which demonstrates the strength and durability of our acquisition strategy. These companies expand our product line capabilities and strengthen SiteOne with excellent talent and new ideas for performance and growth. Our pipeline of potential deals remains robust, and we expect to continue adding and integrating more companies in 2026 to support our growth. Given the fragmented nature of our industry and our current market share, we believe that we have a significant opportunity to continue growing through acquisition for many years to come. Slide 7 shows the long runway we have ahead in filling in our product portfolio, which we aim to do primarily through acquisition, especially in the nursery, hardscapes and landscape supplies categories. We are well connected with the best companies in our industry, and we expect to continue filling in these markets systematically over the next decade. I will now discuss some of our first quarter performance highlights as shown on Slide 8. Net sales were $940 million, essentially flat year-over-year, with organic daily sales down 1%. Due to the timing of winter storms, the spring selling season was delayed in March. Additionally, we believe that the increased macroeconomic uncertainty and higher interest rates are negatively affecting an already soft new residential construction market and the more resilient repair and upgrade market. These factors resulted in a 4% decline in organic sales volume for the quarter, which was partially offset by 3% growth from pricing. Gross profit increased 3% and gross margin improved by 90 basis points to 33.9%, driven by effective price realization and continued progress with our commercial initiatives including strong growth in private label products and with small customers. SG&A as a percent of net sales increased 70 basis points to 37.2% and due to the organic sales decline. That said, we were pleased to have kept our base business SG&A flat versus prior year on an adjusted basis. During the quarter, as we benefited from the 2025 branch consolidations and closures and continue to execute our operational initiatives. Adjusted EBITDA for the quarter increased 14% to $25.5 million versus the prior year period, and adjusted EBITDA margin expanded 30 basis points to 2.7% despite the flat sales, demonstrating our ability to successfully navigate the market headwinds with disciplined execution of our strategy and initiatives. In terms of initiatives, we made good progress during the quarter, executing specific actions to improve our customer experience, accelerate organic growth, expand gross margin and increased SG&A leverage. For gross margin improvement, we achieved positive organic daily sales growth with small customers and grew our private label product sales by over 40% during the quarter. Both contributing to our strong gross margin expansion. These 2 initiatives not only help us expand gross margin, but also help us gain market share and outperform the market. To further drive organic growth, we increased our percentage of bilingual branches from 67% of branches to 68% of branches during the quarter, while continuing to execute our Hispanic marketing programs. We are also continuing to make good progress with our sales force productivity as we leverage our CRM to focus on disciplined revenue-generating actions from our inside sales associates and over 600 outside sales associates. We increased our digital sales on siteone.com by over 60% in the first quarter versus the prior year period. while also increasing regular active users by approximately 60%. We believe we are gaining market share with the customers who are engaged with us digitally as we achieved strong positive total sales growth with these customers during the quarter. siteone.com helps customers to be more efficient and helps us to increase market share while making our associates more productive, a true win-win-win. On the SG&A front, we continued to lower our net delivery expenses during the first quarter, driven by delivery associate and equipment efficiency gains along with improved pricing. Note that our teams have done a good job of working with our customers to pass through fuel surcharges to mitigate the significant near-term increases in fuel cost. We expect to reduce net delivery expense in 2026 and for the next several years as we execute our local market delivery strategy and best practices. We also continued to achieve improved profitability with our underperforming branches or focus branches during the quarter, though they were also negatively affected by the delayed start to the spring season. As a reminder, we achieved an over 200 basis point improvement in adjusted EBITDA margin of our focused branches in 2025 and are looking for strong improvement with these branches once again in 2026. In total, we are making great progress on our commercial and operational initiatives, which will help us gain market share drive organic sales growth, improved gross margin and achieve operating leverage in 2026 despite low sales growth. Furthermore, these initiatives will help us expand our adjusted EBITDA margin over the next several years towards our long-term objectives. On the acquisition front, we've added 2 companies to our family so far in 2026 with approximately $110 million in trailing 12-month sales including Reinders, a strong market leader in the Midwest for irrigation, agronomics and lighting products. Reinders is a good example of a company that we have been courting for many years before they decided to sell their fifth-generation family business late last year. Reinders family carefully consider their options and chose SiteOne as the best long-term home for their company. We have built a solid backlog of additional companies, and we expect to close more acquisitions during the year, yielding a more typical year in terms of total sales acquired. With an experienced acquisition team, broad deep relationships with the best companies, a strong balance sheet and an exceptional reputation as the acquirer of choice. We remain well positioned to grow consistently through acquisition for many years, in the very fragmented wholesale landscape supply and distribution market. In terms of our acquisition team, I'd like to take a moment to recognize Scott Salmon who retired from his role last month after leading our strategy and acquisition team for the last 7 years. Over that period, we added over 70 companies with over $1.3 billion in trailing 12-month sales to SiteOne, while significantly improving our integration processes. Scott has been a tremendous leader and colleague, and we are very grateful for his significant contributions at SiteOne. Fortunately, we have a very strong successor for Scott with Daniel Laughlin, stepping into the role to lead our strategy and acquisition efforts going forward. Daniel is a critical member of our acquisition team meeting some of the most successful acquisitions from 2014 through 2021. Recently, joined us in January and has been part of a smooth leadership transition. We're very confident in Daniel's experience, capability and deep knowledge of SiteOne and our industry, and we look forward to further executing our acquisition strategy under his leadership in the coming years. as we build on the strong foundation that's been established. Now Eric will walk you through the quarter in more detail. Eric? .

Thanks, Doug. I'll begin on Slide 9 with some highlights of our first quarter results. Net sales were approximately $940 million, up modestly from the $939 million for the first quarter of last year. There were 64 selling days in the first quarter, which is the same as the prior year period. Organic daily sales decreased 1% as a result of a 4% decline in volume, partially offset by a 3% increase in pricing. February and most of March, were particularly slow from a sales perspective as winter storms across several regions, limited customer activity and delayed applications, driving a weaker volume result. We saw increased sales activity toward the end of the quarter with better weather conditions. As Doug mentioned, sales volume has improved in April compared to the first quarter. . Pricing performance was strong and broad-based. While we continue to see deflation in grass seed and PVC pipe, which were down 10% and 8%, respectively, in the quarter, the collective magnitude has moderated versus prior periods and was more than offset by price increases across other product lines. In addition, at the start accordingly, we now expect prices to contribute 2% to 3% to 2026 sales growth, while acknowledging the ongoing global uncertainty. Organic daily sales for agronomic products, which include fertilizer and control products, ice melt and equipment, increased 2% for the first quarter due to improved pricing partially offset by the later start to the spring selling season, which delay applications. Organic daily sales for landscaping products, which includes irrigation, nursery, hardscapes, outdoor lighting and landscape accessories, decreased 3% for the first quarter due to adverse weather and soft demand in the new residential construction and repair and upgrade end markets. Geographically, our Eastern regions were more affected by weather, where persistent storms materially disrupted early season customer activity. More broadly, sales were down for the first quarter in 5 of our 8 regions compared to the prior year period. Our central region was a bright spot, achieving double-digit organic sales growth with solid demand and less disruption from winter storms. Acquisition sales, which include sales attributable to acquisitions completed in 2025 and 2026, contributed approximately $12 million or 1% to net sales growth. Daniel will provide additional details regarding our acquisition strategy later in the call. Gross profit increased 3% to $319 million, and gross margin improved 90 basis points to 33.9% for the first quarter. The year-over-year improvement reflects strong execution of our commercial initiatives, including continued momentum in private label sales and growth with small customers, along with solid price realization and vendor support. These gains were partially offset by higher freight and distribution costs as well as continued deflation in certain commodity products. Selling, general and administrative expenses increased to $350 million for the first quarter from $343 million for the prior year period. SG&A as a percentage of net sales increased approximately 70 basis points to 37.2%, driven primarily by the decline in organic daily sales during the quarter. Despite the sales headwind, we continue to tightly manage costs and drive productivity across the business. SG&A in the base business, on an adjusted basis, was flat for the first quarter compared to the prior year period. The effective tax rate was 28.9% for the first quarter compared to 25.5% for the prior year period, primarily due to an increase in excess tax benefits from stock-based compensation year-over-year. We continue to expect the effective tax rate for fiscal 2026 will be between 25%, 26%, excluding discrete items such as excess tax benefits. Net loss attributable to SiteOne was $26.6 million for the first quarter compared to $27.3 million for the prior year period, primarily reflecting higher gross profit, partially offset by our SG&A. Our weighted average diluted share count was approximately $44.6 million during the first quarter compared to approximately $45.1 million for the prior year period. In the first quarter, we repurchased approximately 155,000 shares for approximately $20 million at an average price of $128.90 per share. Post quarter end, we repurchased an additional 6,000 shares for approximately $800,000. Adjusted EBITDA increased 14% to $25.5 million for the first quarter and adjusted EBITDA margin expanded 30 basis points to 2.7%, reflecting the improvement in gross margin and disciplined cost management during the quarter. Adjusted EBITDA for the first quarter includes adjusted EBITDA attributable to noncontrolling interest of $700,000. Now I'll provide a brief update on our balance sheet and cash flow statement as shown on Slide 10. Working capital at the end of the quarter was approximately $1.1 billion compared to $1.0 billion at the end of the same quarter last year. Cash used in operating activities decreased approximately $8 million to $122 million due primarily to a modestly lower net loss and the effect of working capital changes. We made cash investments of approximately $102 million for the first quarter compared to approximately $21 million for the same period last year. The increase primarily reflects the acquisition of Reinders as well as higher capital expenditures. Capital expenditures for the quarter were $23 million compared to $15 million for the same period last year. due to increased investments in our branch locations. Net debt at quarter end was $585 million, and net debt to trailing 12-month adjusted EBITDA was 1.4x which is within our targeted range of 1 to 2x and lower than the 1.5x at the end of the first quarter of last year. Available liquidity at the end of the quarter was approximately $502 million consisting of $84 million of cash on hand and $418 million in available borrowing capacity under our ABL facility. Post quarter end, we amended our ABL facility and extended the maturity date to April 2031. As a reminder, our priority from a balance sheet and liquidity perspective is to maintain our financial strength and flexibility so that we can execute our growth strategy in all market environments. I will now turn the call over to Daniel for an update on our acquisition strategy.

Thanks, Eric. As shown on Slides 12 and 13, we completed 2 acquisitions during the first quarter representing approximately $110 million of trailing 12-month net sales. Both of these companies align well with our strategy of expanding our product offering, strengthening our presence in attractive local markets, and adding high-quality teams to SiteOne. On January 13, we completed the acquisition of Bourget Flagstone Company, a wholesale distributor of hardscape products with 1 location in Santa Monica, California. This acquisition establishes our presence in the Santa Monica market and the surrounding Malibu and Pacific Palisades areas and provides a strategically located site to expand our hardscapes offering in Southern California. Bourget Blackstone brings a long history in the market, strong customer relationships and deep expertise in natural stone and hardscape products. On March 16, we completed the acquisition of Reinders a leading fifth-generation, family-owned distributor of irrigation, agronomics, holiday and landscape lighting and landscape supplies with 12 locations across the Midwest. Reinders significantly expands our presence in the Midwest and strengthens our capabilities in irrigation and agronomics, supported by a team known for technical expertise, on-site diagnostics and strong customer service. The Reinders leadership team will remain with the business, preserving its legacy and customer relationships while benefiting from SiteOne scale, resources and infrastructure. I want to thank the entire SiteOne team for their passion and commitment to making SiteOne a great place to work and for welcoming the newly acquired teams when they joined the SiteOne family. Looking back since 2014, we have completed over 100 acquisitions, representing approximately $2.2 billion of trailing 12-month net sales added to SiteOne. These companies have steadily expanded the number of markets where we can offer a full product line while strengthening our local teams. Summarizing on Slide 14, our acquisition pipeline remains active, supported by long-standing relationships across the industry in a disciplined, consistent approach to evaluating opportunities. While many factors can influence timing, our focus is unchanged, partnering with well-run businesses that fit strategically aligned culturally, and create long-term value for our customers, suppliers, associates and shareholders. With a strong balance sheet, a dedicated acquisition team and a proven integration model, we remain confident in our ability to continue executing our M&A strategy in supporting SiteOne's growth in 2026 in the years to come. I will now turn the call back to Doug.

Thanks, Daniel. I'll wrap up on Slide 15. As mentioned, the spring season was delayed in March, and we have seen improved sales volume and overall positive organic daily sales growth in April so far. However, the recent energy volatility and higher interest rates have increased the macroeconomic uncertainty, and we believe this is having a negative effect on the already weak new residential construction end market and the more resilient repair and upgrade end market. On the positive side, as mentioned earlier, we now expect to achieve 2% to 3% growth in pricing, which will support organic daily sales growth and gross margin expansion. Overall, we continue to expect low single-digit growth in organic daily sales for the year. In terms of end markets, we are experiencing weakness in new residential construction demand, which comprises 20% of our sales and we expect this market to be down for the full year 2026. New commercial construction demand, which represents 14% of our sales was solid in 2025 and we believe it will remain flat in 2026. Main activity from our project services teams continues to be slightly positive compared to the prior year, which is a good indicator of continued demand. The ABI Index has improved recently, and our customers remain bullish for the remainder of the year. We believe that this end market will be flat this year. We believe the repair and upgrade market, which represents 30% of our sales, was down in 2025, but seemed to have stabilized during the second half. So for this year, the repair and upgrade market has been resilient but sluggish with lower consumer confidence. While the long-term fundamentals for repair and upgrade are strong, we believe that repair and upgrade demand will be down slightly this year due to the increase in macroeconomic uncertainty. Lastly, in the maintenance end market, which represents 36% of our sales we achieved excellent sales volume growth in 2025 as our teams gained profitable market share on top of steady demand growth. We have seen the same trends this year so far, and we expect the maintenance end market to continue growing steadily in 2026. In total, after almost 4 months of activity, we expect end market demand to be down modestly this year with weakness in new residential construction and repair and upgrade more than offsetting growth in maintenance. Given this backdrop and with the benefit of our commercial initiatives, we expect flat sales volume, which when coupled with 2% to 3% growth in pricing is expected to yield low single-digit organic daily sales growth for the full year 2026. We expect gross margin in 2026 to be higher than 2025, and driven by price realization and our commercial initiatives, partially offset by higher freight and logistics costs supporting our growth. With our continued strong actions to improve our productivity, and by continuing to address our focus branches, we expect to achieve operating leverage in 2026, yielding solid improvement in our adjusted EBITDA margin. In terms of acquisitions, as Daniel mentioned, we have a good pipeline of high-quality targets, and we expect to add more excellent companies to SiteOne throughout 2026. Lastly, we have an extra week in 2026. Unfortunately, this extra week occurs in fiscal December during a very slow sales period, which is a traditionally loss-making period for SiteOne, as a result, we expect the extra week will reduce our adjusted EBITDA by $4 million to $5 million. With all these factors in mind and including the negative effect of the 53rd week, we expect our full year adjusted EBITDA for fiscal 2026 to be in the range of $425 million to $455 million. This range does not factor in any contribution from unannounced acquisitions. In closing, I would like to sincerely thank all our SiteOne associates who continue to amaze me with their passion, commitment teamwork and selfless service. We have a tremendous team, and it is an honor to be joined with them as we deliver increasing value for all our stakeholders. I would also like to thank our suppliers for supporting us so strongly and our customers for allowing us to be their partner. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from David Manthey with Baird.

Thank you. First off, Doug, I'm most interested in your commercial and operational initiatives, of course, in this sort of slow period. Was hoping maybe you could scale the long-term margin improvement opportunity here, say, next 3 to 5 years? What do you think you can drive out of these many efforts that you have going on, and then as it relates to 2026, maybe if you could highlight the top 2 or 3 that will have the biggest impact this year?

Yes. Thanks, David. Longer term, we have a -- we have our path to 13%, and that's been our target for a while, and we feel good that we can get there with the combination of our commercial initiatives driving organic growth, gross margin expansion and then SG&A efficiency levered. And so the biggest opportunities to drive that I would say on the gross margin side, private label is obviously a big one, and we've got great progress going on there. We're also penetrating with small customers. We have a lower share with small customers than we have with the larger customers. And as we penetrate those small customers, that's a good gross margin driver for us. On the SG&A side, we have our focus branches. That's a big opportunity for us. We made a lot of progress last year. We aim to continue to make progress over the next to 3 years with those lower-performing branches as we raise them up, that's largely SG&A reduction. And then our delivery efficiency is a big opportunity for us to reduce our last leg of delivery expense. As you know, over the years, we've worked on our inbound freight and our supply chain. We're now putting a lot of focus on our outbound delivery from the branches. And so those are some of the bigger opportunities. And of course, just the general leverage we get by driving organic growth, which the aiders there are our digital is a big driver of our sales force performance efforts. And then private label and small customers would also contribute to organic growth. So you put those together, we have lots of opportunity. We're mining those this year to drive our business. Longer term, we feel like that can get us up into the double digits on for that 13% objective.

That's great. Maybe I could double-click on the private label. I believe you said it grew 40%, maybe I heard that wrong. But what percentage of total sales are private label as we sit here today? And then could you talk about just what are the key products that are driving the outsized growth there?

Yes. I want to clarify that the 40% were our high-growth private label product lines, which are pro trades the lead there that's in lighting and landscape supplies, portfolios or nursery private label and Solstice Stone is our hardscape private label. When you take those 3, they grew at 40%. If you add in LESCO and our total private label, it grew at 10% in the quarter. So still moving ahead we're approximately 15% private label, and we're looking to increase that by 100 basis points a year. And so we accomplished that last year and we aim to keep ticking that up over the next 5 to 10 years, quite frankly. Our goal there would ultimately be kind of 25%, 30% private label. And so, we've got a good start this year to being on that same pace heading towards that goal.

Our next question comes from Ryan Merkel with William Blair.

I want to start off with the quarter. Doug, can you talk about what was the impact of weather? You missed the Street by about $40 million. I know that's difficult, but any help there would be helpful. And then how much was macro being weaker in the quarter? You called out new resi construction. Just curious what you saw there.

Right. Well, it's kind of hard to discern because both are happening at the same time. I would say that maintenance is 36% of our business. And that's the 1 that gets the most deferred as we're moving kind of from quarter-to-quarter based on when the spring starts and so as we mentioned, and we've seen the volumes improve in April. We haven't caught all the way back up to where we aim to be for the year, but we've seen that improvement, and that's largely that maintenance and some of the new construction came in seasonally. On the macro side, we just -- you can see that we've dropped our guide for the market, we would have initially said it was flat. Now we're saying it's going to be modestly down. I think that's -- that quantifies the macro uncertainty. We feel like we're seeing that and that we'll continue to see that throughout the year. Consumer confidence is low, gas prices are up. It's just -- it's not a great environment. And that makes the weakness in new resi a little bit worse. And we've seen some of that. And it weakens the repair and remodel market, which we've seen some of that. It's mixed. It's not falling off the cliff. We still believe that the remodel market is resilient, but you can certainly see some jobs being deferred and there's weakness here and there in that market.

Okay. That's fair. I know quantifying weather is difficult. So I appreciate that. My second question is on price. You're raising it a little bit, but I thought you might raise it more -- so I'm curious, like is the cadence just sort of 3% across each of the quarters, the rest of the year? And what are you assuming now for PVC and fertilizers because I think there's probably some inflation there.

Yes. Good question, Ryan. When we talked to it last quarter, we were thinking 3 in the first quarter, stepping down to 2%. And then in 1 in the second half, we were comping the increases in June time frame of last year. Our thinking now is through -- we did 3 in Q1. We see continuation with that. It's probably even a little firmer 3 here in the second quarter. And then there's some uncertainty. So we think 2 maybe in the second half gets you kind of midpoint of that 2% to 3%. There is some upside and -- but there is also some uncertainty. We're still evaluating PBC. We're working closely with our suppliers expecting those price increases here during the quarter and monitoring overall price increases across the rest of our supplier base -- there's just a lot of uncertainty looking out in the rest of the year. So I think 2 to 3 is a fairly conservative point right now for where we sit. Certainly, there is some upside opportunity in the rest of the year and we'll have a better view of that as we progress through the second quarter.

Our next question comes from Mike Dahl with RBC Capital Markets.

Just to touch on kind of the margin breakdown. I think last quarter, you articulated that within the year-on-year composition like the gross margin and SG&A contribution would be relatively dimmer, just given the moving pieces, price better, volume a little worse, a good start to the year on gross margin. Can you just help us understand kind of within your expectations today, how you would think about the breakdown between gross margin and SG&A leverage this year?

Yes, we still expect to get SG&A leverage for the full year. we're looking at Q2 and Q3 for that to occur. Q4, we have the extra week, so that will be dilutive. So we don't expect to get SG&A leverage in the fourth quarter. But to your point, we do believe that gross margin now expected to be higher, you can see what we did here in Q1, expect to expand gross margin in Q2. We were thinking more flat in gross margin in the second half of the year when the year started. So there's some upside opportunity, I would say, Q3 probably a little better than we thought Q4 unknown. SG&A right, with a little bit of a change in the end market outlook. So SG&A, gets a little bit harder to leverage. We feel like we're doing a really good job managing the cost side of it, but organic, we still believe low single digits. I would say it's probably tilted a little more in favor in gross margin at this point. We thought 50-50 contribution when the year started. And I would say that's shifted up in favor of gross margin.

Okay. That's helpful color. And just as a follow-up on the SG&A dynamics, I mean, with the more subdued outlook on kind of market dynamics, obviously, you have all the initiatives in place, but is there anything else kind of more discrete or incremental that you're now contemplating in terms of further cost-out actions?

Yes. I think we always win if the market is tougher, if volumes are lower, we'll take action manage labor tightly, other expenses more tightly, et cetera. So there are certain actions we can take. But as Eric mentioned, SG&A leverage is certainly more challenging as the volume goes down. So we would expect a little bit more -- less leverage more on the gross margin side for the remainder of the year. If things get tougher, we can certainly fight to maintain that leverage. And we'll continue to manage it tightly in any case and then see how it works out on the volume side.

The other point I would add to on SG&A is the rising fuel cost for delivery goes through SG&A. And we've talked about fuel surcharge that we implemented at the end of March. The charge for that is in sales. So you can see a little bit of a negative impact on SG&A from the dollar side.

Our next question comes from Keith Hughes with Truist Securities.

So talk a lot about inflation on this call. Are you seeing any signs that you're not able to get any of these price increases through on customers given what's kind of a shaping demand environment right now?

Our market is pretty efficient, and it's been traditionally pretty efficient and pass it through price increases. So, so far, we -- obviously, we work with our customers on that. But so far, we've been able to pass through price increases, and we feel pretty confident that we can continue to do that, working with our customers and suppliers to make it as seamless as possible for our customers, but our market tends to be pretty efficient there, and we don't expect that to change.

And I mean there are some categories where there could be a lot more inflation specific PVC pipe. When you get increases from your suppliers, how long does that take to get implemented? Is there usually any drag when numbers go up notably? .

No. It's pretty much concurrently. We're in contact with suppliers. We've been signaled ahead of time and we plan accordingly and provide notice to our customers in advance of those price increases.

Especially with things like pipe and fertilizer and products that move around, the market, there's a good communication in the market where we can give the customers heads up and we're giving a heads up by the suppliers and it happens pretty quickly. I was going to say we're in the height of the fertilizer season. So this price increase has been in effect since 41. So we've managed through that and nothing significant to call out. I would say it's fairly inelastic and PVC pipe. We'll work through that in the coming months, but I would like to highlight the last 3 years, '23, '24, '25, they've been significant declines in PVC pipe in price. So we wouldn't expect these increases that are being contemplated to be an elasticity issue.

Okay. Just a final 1 on grass seed, still looking for grass seed, whatever price does there, it's still a third quarter reset. Is that still the case?

That's correct.

Our next question comes from Matthew Bouley with Barclays.

So on the gross margin, you have that 10% growth in private label and it sounded like success with smaller customers. So it seems like that would move the needle a bit on margins. You have the 90 basis points there. So question is I want to see if you can quantify how much of the margin expansion is coming from some of these commercial initiatives that presumably are more structural in nature versus if there's any kind of temporary benefit that you sometimes see due to inflation. You had the 3% price just to sort of help us kind of dial in gross margin forecast in a more normal environment.

Yes. we typically don't give a breakdown specific by initiative. And so I don't think we can offer any help there. It's just I would say that private label small customers contributing strongly as is the price realization that we're getting on the other side. I don't know, Eric, anything to comment on that?

Yes. And I think of this quarter is if we look in the light of Q3, Q4 in the line of the basis point contribution, you can see where price has been benefiting us. So we're a little bit better there, but I would say that we've had pretty good run rate now with private label contributing to gross margin expansion for a number of quarters.

Okay. Got it. That's helpful. Yes. Sometimes in the past, you guys have quantified at least the temporary benefit. But I guess the second question is on Reinders just because it's a fairly large deal. Obviously, in the past, some of the bigger deals, you guys have taken a little bit of time to sort of integrate them into the whole system. So -- just any color on kind of the margin profile of this business? And if there is opportunity for you to expand margins further with this business as you do integrate it in the cycle .

Yes. No, Reinders is a strong company. We're excited to have them join. There are pretty significant synergies with Reinders they're in irrigation, agronomics, lighting landscape supplies. And so on those product lines, we tend to have higher synergies. And so there's good synergies there. We'll get some of those synergies this year. We are system-wise, we'll integrate them next year, but we are syncing up with their teams and capturing some of those opportunities. We do expect them to be nice and profitable this year around -- probably around where we are and in the future, there's significant upside there as our synergies fully kick in. So excited about the deal. It's a strong company. They've got a great team. and we can certainly add value. They actually do a lot of digital. They're 1 of the leaders in the market with digital. And so we're going to take our time integrating with their digital and ours. But it's good to join forces with a company that's more progressive relative to other companies in the industry. And Reinders is 1 of those companies.

Our next question comes from Jeffrey Stevenson with Loop Capital Markets.

Are there any concerns of fertilizer shortages or potential inflation pressures and other commodity products, such as PVC piping could have an impact on maintenance demand similar to a couple of years ago when customers were holding off on certain maintenance projects due to elevated commodity price levels.

Right. Yes. And you're referring to the kind of COVID where prices move significantly in fertilizer. And that did hurt demand in that year exactly which year it was. But the nature of the increase around 5% for fertilizer is not to the magnitude that we feel like it will create any kind of demand degradation. Fertilizer does move around from routinely a couple of percent here and there. So 5% isn't a tremendous move and we feel like our customers will be able to handle that and it won't affect the applications. In terms of supply shortages, we've got a great supply chain. We've got multiple sources for most of our products, but we don't anticipate, at least at this time, that there will be any shortages in supply that will drive additional inflation. So we feel pretty good about where we are and the ability of the market to absorb some of these price increases that are obviously, we never enjoy absorbing price increases into a market, but 5% is a manageable level there.

Okay. No, that's very helpful, Doug. And then I just wonder if you could quantify any more of the magnitude of expected new residential declines this year. And then on top of that, kind of what you're hearing so far from builders or in the spring selling season and if I remember correctly, typically, there's an 8- or 9-month lag between when there's a single-family housing start and when that shows up in demand and if that's the case, if there's any improvement and starts as we move through the year, is that going to be more of a kind of late '26, 2027 when it will show up in demand?

Right. Yes, you're correct. I mean we go by completions, not start. And there is a lag there in 6 months, 6 to 9 months, et cetera. So we feel like the new res market is going to be down mid- to high single digits this year. And we're getting mixed. There's mixed messages from builders. Some are more positive, some are less positive. But our view is that we're probably not going to see much improvement this year and it starts to improve this year, that will certainly help us in 2027, but not in 2026.

Our next question comes from Charles Perron-Piche with Goldman Sachs. Charles Perron-Piché: First question, as you look to drive efficiency -- as your customers look to drive efficiencies, are you seeing them leaning more into sites, digital and delivery tools and a higher freight cost environment and more broadly, how can you have your investment in technology help you again the current backdrop?

In terms of our customers, yes, we do see them using digital more and as we mentioned, our digital sales are up 60% or we expect them to be up substantially this year and more and more customers are utilizing digital just to make their ordering and interactions and transactions with us more efficient. In terms of fuel prices are up, Eric mentioned that we've implemented fuel surcharges. We work with our customers routinely to get the product to their job sites at the lowest possible cost. And so yes, our delivery capability gives us a ways of working with our customers and getting it there in a low-cost fashion. And so we have a fair bit. We have about 1/3 of our business is delivered -- and we see that going up as things get tougher and customers kind of allowing us to help them get the materials there and get the job done at a lower cost. Charles Perron-Piché: Got you. That's good color, Doug. And shifting gears to capital allocation. You repurchased $20 million of shares in Q1, which is quite high for relative to the other first quarters in the last few years. How does he inform your willingness to do more? And at the same time, can you talk a little bit more about the M&A pipeline and your confidence to close more deals in 2026.

Yes, I'll take the first part of that. we continue to be opportunistic. We're going to look at the whole year and making sure that we're first focused on growth, M&A. We we had good visibility that Reinders acquisition was going to close in Q1 a seasonal slow quarter for us. But obviously, where the stock is, represents a good buying opportunity. We're going to continue to be opportunistic the rest of this year. We see that balanced capital approach, and we did close to [ $ 100 ] million in repurchases last year. So depending on where M&A turns out, we'll balance that out in how we buy back shares. But we'll continue to be opportunistic again where the price is.

Yes. In regards to M&A, the pipeline is healthy, we're constantly in discussion with owners and confident we can continue to have success for the rest of 2016 and beyond.

Our next question comes from Sean Calnan with Bank of America.

Just first, can you kind of quantify the improvement in volumes that you're seeing in April? And should we expect Q-Q to be the highest growth quarter, just given the shift in sales from 1Q to 2Q? And then the fertilizer pricing increase with April being a big month for that.

Yes. I would just say that volumes have improved. Volumes aren't positive in the first -- in April, but they have improved versus where they were in the first quarter. And in terms of volume by quarter, there's no real gauge that would make the second quarter. I mean, obviously, first quarter is lower. You do some catch-up in the second quarter. It's going to tend to be higher, but we're talking percentage 1, 2 percentages. And the third and fourth quarter also kind of split by the season. spring season in September, October. And obviously, that's third and fourth. So it's really hard to call volume growth by quarter. What makes more sense to us is kind of half year what it is at the end of June and what it is at the end of the year is a better way to kind of think about volume and because you get the full screen season and you get the full fall season, if you take that book. So we'll see how the spring continues to evolve, and we'll have a better read when we get to June.

Okay. Great. And then when you have expectations for price increases, like we have right now, do you typically see customers try to get ahead of those price increases and pull forward their purchases?

Sure. That tends to happen, especially on fertilizer pipe, but keep in mind, our customers don't have massive storage. So they're taking some product to the extent that they can. And we work with customers on commercial jobs that are already in progress. And so yes, some of that goes on whenever there's a price pass-through, and that's why we give our customers as much lead time as possible so that they can they can adjust and do their purchasing to try to get ahead of it themselves.

Our next question comes from Collin Verron with Deutsche Bank.

I just want to dive into the cost a little bit more. It looks like inventory costs in the COGS line dipped around 3% in the quarter despite the total sales being relatively flat. So can you just walk us through the moving pieces there? Is that the mix improvement toward private label showing up or are there some other factors in there that we should be considering? And how are you thinking about that going forward? Is there any reason that, that year-over-year decline might move throughout the year?

Yes. I think you hit on it it's private label, it's product mix, but we also have the lower. We had -- we were fully stocked for the spring selling season with fertilizer in particular. So I would say that, that continues a bit into Q2. But beyond that, I would expect that not to continue.

Great. That's helpful. And then just on the freight handling distribution expenses, I saw a sizable increase I know it's a small piece of the COGS bucket, but it was just a notable headwind in the first quarter. So can you just talk about what was driving that inflation and sort of the magnitude that you're baking into the guidance for your freight handling distribution expenses in that bucket?

Yes. So there's the rising cost of diesel in there for Q1 that's in March. That's a component. We've got international freight to related to our private label products. We got the increase there. But also keep in mind that we have our fifth DC in the cost there with that not in the Q1 prior year. So we mentioned that too on the last call that we would have an increase in distribution costs. So that's in there as well.

Our next question comes from Matt Johnson with UBS.

Appreciate the time. I guess, first off, if we could just dive into the fertilizer piece a little more. I know it's given the disruption in the Middle East, it sounds like you guys took a 5% price increase there. But could you just give us an update on how much inventory you guys have in your distribution centers. And then, I guess, assuming that urea prices stay at these levels, I think they're up somewhere around 40% to 50% year-over-year. But how should we think about the impact of fertilizer costs for you guys as that starts to come through?

Yes. So urea is up substantially. Keep in mind that it's only 1 component of fertilizer and we can actually move components around and fertilizers. So there is some latitude there and we take advantage of that to try to minimize the effect on our customers, the 5%, as I said, is a reasonable reflection of passing through cost, maintaining our margin. We obviously that price increase is mid-season. So we have -- we stock up for the season. And so we obviously have some product in our branches that we're shipping. And as I mentioned, we -- so far, we've not experienced any supply shortages that would that would not have -- have product available for our customers or allow us to gain market share. So we feel like we're in pretty good shape there, and we think it will be continue to be a successful season.

Yes. I think we're going to get good place on supply. We're working with our category team leaders. So we feel good not only about the season, but into the fall. And as we get later in the year, we'll continue to evaluate those opportunities.

That's great. I appreciate that. And then I guess if we could just talk a little more about the focus branches. I think you guys drove a little over 200 basis points of EBITDA margin improvement at those branches in 2025. I guess given all the kind of disruption and noise in the market right now, how do you guys feel about your ability to achieve a similar result this year at those focus branches?

Yes. Well, we feel good about it. I mean, obviously, if the market turns out to be tougher and we're lower on volume that will affect the focus branches, but we -- we had improvement in the focus branches, good improvement in the first quarter, and we feel very good about our being able to turn those branches improve the profitability even in a soft market condition. So we feel good at this point, the tougher the market gets, the tougher that gets, but we can move the needle even in the softer market there.

Our next question comes from Andrew Carter with Stifel.

I just want to follow back up on Reinder. It's $100 million incremental -- and you said it's similar to company margins, and you also acquired it right before -- right ahead of the spring season. So why shouldn't this be an $8 million or $9 million kind of type contribution to EBITDA for the year therefore, your kind of EBITDA range has some added flexibility.

Yes. You kind of nailed it. That's what we expect. And yes, it provides, I guess, more insurance for our range. Keep in mind that, obviously, we won't reflect the full $100 million. We did miss almost 3 months of that. But yes, we do expect it to be profitable along the lines of what you're saying there. And that helps us have confidence in our range, given kind of softer market conditions and overall uncertainty that we need to keep in mind.

Sounds good. I appreciate that candid answer. I'll pass it on.

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Doug Black for closing comments.

Well, thank you all for joining us again today. Before I conclude, I want to highlight an upcoming event we have. We're hosting our 2026 SiteOne Investor Day on June 23 and 24 in Atlanta, we'll be going through a comprehensive update on our performance, our strategy, our long-term initiatives and offer investors an opportunity to engage with our executive leadership team, which we're quite proud of. And so we look forward to welcoming investors and analysts to our event in June. We appreciate your interest in SiteOne. We look forward to speaking to you again at the end of the next quarter. Again, a big thank you to our terrific associates and to our customers for allowing them to us to be our partner and to our suppliers for supporting us. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.