SiteOne Landscape Supply, Inc. Q2 2026 Earnings Call

Welcome to the SiteOne Landscape Supply second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Eric Elema, Chief Financial Officer. Thank you. You may begin.

Thank you. Good morning, everyone. We issued our second 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 Laughlin, SVP, Strategy and Development. Before we begin, I'd 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 slide presentation. I would now like to turn the call over to Doug Black.

Thank you, Eric. Good morning. Thank you for joining us today. We delivered a solid second quarter performance with 5% growth in net sales and adjusted EBITDA, 8% growth in net income and strong cash flow despite softer end markets. Our teams executed well throughout the quarter, driving our commercial and operational initiatives while continuing to manage our SG&A spending tightly. We also took advantage of our strong cash flow and recent share price weakness and returned over $100 million to shareholders through our share repurchase program while maintaining a strong balance sheet to invest in our business and pursue attractive acquisition opportunities. While market conditions remain challenging, we continue to focus on serving our customers, gaining market share, expanding our EBITDA margin, and strengthening the business to drive future performance and growth.

Our acquisitions are performing well. We have an active pipeline of opportunities which we expect will result in more acquisitions during the remainder of the year. Overall, we remain confident in the long-term opportunity ahead of us and believe our strategy, competitive position, and execution capabilities will continue to differentiate SiteOne in the market. I will start today's call with a brief overview of our unique market position and our strategy, followed by highlights from the second quarter. Eric will walk you through our second quarter financial results in more detail and provide an update on our balance sheet and liquidity position. Daniel will discuss our acquisition strategy. I will come back to address our outlook and guidance for 2026 before taking your questions.

As shown on slide four of the earnings presentation, we have a strong footprint of more than 680 branches and five distribution centers across 45 U.S. states and five Canadian provinces. We are the clear industry leader, approximately three times the size of our nearest competitor. Yet we estimate that we only have about a 13% share of the very fragmented, $36 billion wholesale landscaping products distribution market. Note that the $36 billion total addressable market is a significant increase from the previous $25 billion estimate, as it includes important adjacent product categories that we have entered over the past five years. 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.

As the only nationwide 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 us multiple avenues to grow and create value for our customers and suppliers while providing important resiliency in softer markets like the market we are in today. Turning to slide five, our strategy remains straightforward and unchanged. Leverage the strengths of both a large nationwide organization and our very experienced and highly entrepreneurial local teams. Our goal is to fully utilize our scale, resources, and capabilities in support of local execution to deliver superior value to our customers and suppliers in every market that we serve.

We do this through our focused commercial and operational initiatives, which not only build a long-term competitive advantage for all our stakeholders, but also help us overcome the near-term headwinds. 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 altogether, we expect our strategy to create superior value for our shareholders through organic growth, acquisition growth, and EBITDA margin expansion. At our Investor Day in June, we described our strategy and initiatives in detail and outlined our financial targets through 2030. The current challenging end markets, the execution of our strategy, we believe, allows us to outperform the market organically while leveraging acquisition growth and EBITDA margin expansion to deliver solid financial progress. We expect our progress to accelerate as end markets return to normal growth.

Accordingly, we remain highly focused on executing our commercial and operational initiatives, strengthening the business, and continuously improving areas that are within our control. On slide six, you can see our strong track record over the last 10 years with consistent organic and acquisition growth. As mentioned, we expect to continue driving organic and acquisition growth while recovering and expanding our EBITDA margin significantly over the coming years. Our ability to deliver EBITDA margin expansion in both soft and healthy market conditions is expected to yield attractive EBITDA growth and improve return on invested capital in the coming years. Finally, with our strong cash flow, we can support our strategy and return capital to shareholders through our share repurchase program. Overall, we are well-positioned to create solid value for our shareholders in 2026 and significant value over the longer term.

We have 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. 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 can add over $2 billion of acquired trailing 12 months revenue to SiteOne over the next 10 years. Slide seven shows the long runway that 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 expect to continue filling in these markets systematically over the next decade.

I will now discuss some of our second quarter performance highlights, as shown on slide eight. Net sales increased 5% to $1.53 billion during the quarter, with 1% organic daily sales growth and 3% sales growth added through acquisitions. We believe that new residential landscaping demand is down high single digits, and demand in repair and upgrade is down mid-single digits this year, reflecting the decline in new home completions and ongoing macroeconomic uncertainty. Additionally, we believe that end market demand for maintenance products has been negatively impacted in the short term by the recent significant price increases as customers adjust to meet fixed budgets. Accordingly, even though we believe that we are outperforming the market through our commercial initiatives, we were unable to fully offset end market declines, resulting in a 2% decline in sales volume during the quarter.

Pricing increased by 3% year-over-year during the quarter, yielding the 1% organic daily sales growth. Gross profit increased 6% to approximately $565 million, and gross margin improved 50 basis points to 36.9%. The improvement reflects increased price realization along with execution of our commercial initiatives, including continued strong growth in private brands and with small customers, and excellent management of fuel surcharges in response to higher delivery expense. SG&A, as a percentage of net sales, increased 30 basis points during the quarter as our operational initiatives and tight management of spending were more than offset by higher fuel costs, increased healthcare expenses, and ongoing cost inflation. Given the market weakness, we are taking additional actions during the remainder of the year, which we expect will achieve approximately flat SG&A as a percentage of net sales for the year.

Adjusted EBITDA increased 5% to $237.2 million, and adjusted EBITDA margin was maintained at 15.5%. Year-to-date, we have improved adjusted EBITDA margin by 20 basis points, and we expect to continue expanding adjusted EBITDA margin in the second half and for the full year 2026, despite the softer markets. In terms of initiatives, we continue to make solid progress during the quarter despite the lower end market demand. Executing specific actions to improve our customer experience, drive organic sales growth, expand gross margin, and manage SG&A. For organic growth and gross margin expansion, we achieved good organic daily sales growth with our small customers and grew our Pro-Trade, Solstice, and Portfolio private brand products collectively by 40% during the quarter. A percentage of branches with bilingual capability is nearly 70%, despite adding 12 Reinders branches without this capability.

We continue to execute our Hispanic marketing strategy to drive growth in this important customer segment. We increased our digital sales on siteone.com by over 50% year-to-date versus the prior year period, while also increasing our regular active users by approximately 40%. We believe we are gaining market share with the customers who are engaged with us digitally as we achieve strong, positive total sales growth with these customers during the quarter. siteone.com helps customers to be more efficient, 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 expense during the second quarter as a result of increased efficiency along with improved pricing. As mentioned, 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 costs.

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 continue to achieve improved profitability with our underperforming branches or focus branches during the quarter, though they were also negatively affected by low organic daily sales growth. We expect to drive steady improvement with these branches in 2026, which should accelerate with more normal end market demand in the coming years. In total, our ability to execute our commercial and operational initiatives, we believe, enables us to outperform the market and deliver EBITDA margin expansion despite lower end market demand. Furthermore, we expect these initiatives to help us drive organic growth and expand our adjusted EBITDA margin over the next several years towards our 2030 targets.

On the acquisition front, we have added two 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. We have an active pipeline of additional companies. We expect to close more acquisitions during the remainder of the year. An experienced acquisition team, broad and 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 distribution market. Eric will walk you through the quarter in more detail. Eric? Thanks, Doug. I'll begin on slide nine with some highlights of our second quarter results.

Net sales increased 5% to approximately $1.53 billion during the quarter, compared to approximately $1.46 billion for the prior year period. Organic daily sales increased 1%, driven by price inflation in response to rising costs and the benefit of our commercial initiatives, partially offset by softer end markets. Acquisition sales, which include sales attributable to acquisitions completed in 2025 and 2026, contributed approximately $49 million or 3% to net sales growth during the quarter. From a demand perspective, as Doug mentioned, we continue to experience challenging conditions in our end markets. Organic volume declined approximately 2% during the quarter due to weakness in the new residential construction and repair and upgrade end markets. Pricing contributed approximately 3% during the quarter, which was generally in line with our expectations coming out of the first quarter.

The year-over-year price increases reflect supply dynamics and higher transportation costs. We benefited from the tariff-related price increases that were implemented in 2025. Pricing was positive for most of our product categories and more than offset the deflationary impacts of grass seed and PVC pipe, where prices were down by 9% and 4%, respectively, for the quarter. For the full year, we expect pricing to contribute approximately 3% to our results. While pricing was solid in the second quarter, there remains a high degree of uncertainty for the rest of the year, given the ongoing disruption in the Middle East and related volatility in commodities. We lap the 2025 tariff-related price increases for the remainder of the year. We believe pricing is more likely to track near 3% in the second half of the year rather than accelerate meaningfully from current levels.

From a regional perspective, performance varied significantly by market. The central region continues to be our strongest performer, achieving double-digit organic growth for the second quarter, following the same result for the first quarter. The Sun Belt remained challenged, particularly California, Arizona, and Texas, where organic sales were down due to weaker demand in the new residential construction and repair and upgrade end markets. Texas also experienced a meaningful amount of rain during the second quarter, although weather did not have a broad negative impact on our overall sales performance for the quarter. Organic daily sales for agronomic products, which include fertilizer and control products, ice melt, and equipment, increased 5% for the second quarter due to price inflation resulting from rising product costs. Agronomic volume growth was 1% for the quarter against a difficult comparison to the prior year period.

We believe the higher prices for certain agronomic products like fertilizer have also reduced short-term volume as our customers deal with fixed maintenance budgets. Organic daily sales for landscaping products, which include irrigation, nursery, hardscapes, outdoor lighting, and landscape accessories, were flat in the second quarter compared to the prior year period, reflecting weakness in new residential construction and softer repair and upgrade activity. Gross profit increased 6% to approximately $565 million, and gross margin improved 50 basis points to 36.9% during the quarter. The improvement was driven by price realization and execution of our commercial initiatives, including continued private brand and small customer growth. Pro-Trade private brand sales increased nearly 50% in the quarter compared to the same period last year, and small customer growth also remained strong, both of which supported gross margin performance.

These benefits were partially offset by the dilutive effect of freight and distribution costs resulting from higher fuel prices, the addition of our fifth distribution center this year that wasn't operational in the prior year period, and continued deflation in certain commodity products. Selling, general, and administrative expenses increased to approximately $371 million for the second quarter from $349 million for the same period last year. SG&A as a percentage of net sales increased approximately 30 basis points to 24.2%, driven primarily by the modest organic daily sales growth during the quarter. Acquisitions accounted for approximately half of the total year-over-year increase in SG&A for the second quarter. SG&A in the base business on an adjusted basis increased approximately 3.5% compared to the prior year period. The increase in base business SG&A was due primarily to higher healthcare expenses and fuel cost inflation.

Effective tax rate was 25.7% for the second quarter, compared to 25.4% for the prior year period, primarily due to higher state income tax expense. No excess tax benefits were recognized in the second quarter or the prior year period. We continue to expect the effective tax rate for fiscal 2026 will be between 25% and 26%, excluding discrete items such as excess tax benefits. Net income attributable to SiteOne increased 8% to $139.3 million, compared to $129.0 million in the prior year period. The improvement primarily reflects gross margin expansion, partially offset by higher SG&A expenses and continued market-related volume pressure. Our weighted average diluted share count was approximately 44.4 million during the second quarter, compared to approximately 45.1 million for the same period last year. In the second quarter, we repurchased approximately 797,000 shares for approximately $94 million at an average price of $117.63 per share.

This was our largest share repurchase quarter since we initiated the plan in October 2022. Post quarter end, we repurchased an additional 101,000 shares for approximately $10 million, bringing year-to-date repurchases through July to 1,053,000 shares for approximately $124 million. Adjusted EBITDA increased 5% to $237.2 million, compared to $226.7 million in the prior year period. Adjusted EBITDA margin of 15.5% was consistent with the prior year period. Adjusted EBITDA includes $1.3 million attributable to non-controlling interest. During the quarter, we acquired the remaining 25% interest in Devil Mountain Wholesale Nursery and now own 100% of the business. Now I'll provide a brief update on our balance sheet and cash flow statement, as shown on slide ten. Working capital at the end of the quarter was approximately $1.10 billion, compared to $1.06 billion at the end of the same period last year.

Cash provided by operating activities increased approximately $17 million to $153 million due primarily to higher net income and a positive contribution from working capital changes. We made cash investments of approximately $15 million for the second quarter, compared to approximately $17 million for the same period last year.

Capital expenditures for the quarter were approximately $18 million compared to approximately $14 million for the same period last year, due to increased investments in our branch locations and branch equipment. Net debt at quarter end was approximately $556 million, compared to approximately $532 million for the prior year period. Net debt to trailing 12-month adjusted EBITDA was 1.3 times, which is within our range of one to two times and unchanged compared to the same time last year. Available liquidity at the end of the quarter totaled approximately $530 million, consisting of $87 million of cash on hand and approximately $443 million of available borrowing capacity under our ABL facility. During the quarter, we amended our ABL facility to, among other things, extend the maturity date to April 2031, further strengthening our financial position.

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 slide 11, we did not complete an acquisition during the second quarter. However, our acquisition pipeline remains active and healthy. We continue to engage with a large number of high-quality businesses across the landscape supply industry and remain encouraged by both the quality and quantity of opportunities we are seeing. Our focus remains on building long-term value through disciplined acquisitions that strengthen our product offering, expand our capabilities, and enhance our local market positions. As a reminder, we completed two acquisitions earlier this year that together represented approximately $110 million of trailing 12-month sales. These acquisitions further strengthened our position in attractive local markets while adding talented teams and new capabilities to the SiteOne platform. The integration of these businesses is on track, and we are pleased with their performance and strategic fit.

We continue to drive steady acquisition growth with a focus on building strong relationships with potential targets that lead to negotiated deals when they are ready to sell. Many of our most successful acquisitions have resulted from relationships that we have developed over many years. In many cases, we are meeting with owners long before they're actively considering a transaction. Our reputation as the acquirer of choice, our commitment to preserving local relationships and cultures, and our track record of successful acquisitions, continue to differentiate SiteOne in the market. Overall, we remain confident in the long-term acquisition opportunity in front of us. Our pipeline is active, our relationships remain strong, and our competitive advantages as a buyer continue to resonate with prospective sellers. We believe SiteOne remains uniquely positioned to play a strong role in consolidating our industry for many years to come.

I will now turn the call back to Doug.

Thanks, Daniel. I'll wrap up on slide 13. We believe that the ongoing energy volatility, higher interest rates, weak consumer confidence, and increased macroeconomic uncertainty are collectively having a negative effect on the already weak new residential construction end market, and the typically more resilient repair and upgrade end market. These trends are more than offsetting modest growth in maintenance and flat new commercial construction. Pricing continues to be positive, and we believe that pricing will contribute approximately 3% to net sales growth for the full year. Overall, with the benefit of our commercial initiatives, we expect organic daily sales growth for the year to be flat to up 1%. 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 high single digits for the full year 2026.

New commercial construction demand, which represents 14% of our sales, has been solid so far, and we believe it will remain flat in 2026. Beating activity from our project services teams continues to be slightly positive compared to the prior year, which is a good indicator of continued demand. 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 of last year. However, with the increased macroeconomic uncertainty, volatile energy costs, high interest rates, and continued weak consumer confidence, we believe that repair and upgrade market has taken another step down this year. While the long-term fundamentals for this end market are strong, we believe that repair and upgrade demand will be down approximately mid-single digits in 2026.

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 the steady demand growth. We have seen steady demand so far this year, though there seems to be some near-term volume reduction in response to higher fertilizer prices where the customer's maintenance budgets are fixed for the year. Overall, we expect the maintenance end market to grow modestly in 2026. In total, after almost seven months of activity, we expect end market demand to be down this year With weakness in new residential construction and repair and upgrade, more than offsetting modest growth in maintenance.

Given this backdrop, and with the benefit of our commercial initiatives and 3% growth in pricing, we expect our organic daily sales to be flat to up 1% for the full year 2026. We expect gross margin in 2026 to be higher than 2025, driven by price realization and our commercial initiatives, partially offset by higher freight and logistics costs supporting our growth. Given the lower sales volume, we expect SG&A as a percent of net sales to be approximately flat for the full year, with our operational initiatives and actions to reduce SG&A offsetting higher fuel costs and general cost inflation. Overall, we expect 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 the SiteOne family during the remainder of the year. 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-$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-$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.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, please limit to one question and one follow-up. First question comes from Ryan Merkel with William Blair. Please go ahead. Hey, everyone.

Thanks for the questions, and good morning. Doug, I wanted to start on the quarter and just the weaker volumes that you saw. It sounds like the biggest issue is new resi in the Sun Belt markets. What kind of negative growth are you seeing in those Sun Belt states for new resi? It sounds like R&R took a step down. Which product categories are you seeing the biggest impact there? Is that broad-based across the country for the R&R market?

Yeah. New residential, we've seen some increased weakness. If you look at last year, starts were down significantly. Completions were a little better than starts. I think what we've seen this year is that starts are down mid-single digits, but completions are down high single digits. We're seeing worse than that in the Sun Belt, the California, Arizona, Texas, and then better than that up in the Midwest. Overall, it's pretty broad-based, though, in terms of residential outside of the Midwest. We're seeing it in across the Southeast, et cetera. Yeah. That market is kind of weaker than expected. Remodel is broad-based. Our remodel products, hardscapes and lighting are good barometers of remodel. Yes, it is broad-based across the country. Obviously, it's a little worse in some of those Sun Belt areas.

We really think that's just a matter of the Ukraine war, the volatility in energy, wheat consumer, all the factors that typically support remodel really aren't there this year. We feel good about the markets long term, and we think it'll snap back, and it has the opportunity to snap back faster, we believe, than residential. Right now it's taken another step down. It's pretty weak. We see those in those products. Obviously, we talk to our vendors and our partners. We have pretty good confidence that that market's just taken another step down. Hopefully, it'll stabilize at the current levels.

Okay. Got it. That's helpful. Thanks for that. My second question, how are you thinking about volumes in the third quarter? It looks like maybe down 2% is a good starting point. Comment on pricing 3% for the year. It implies you're not getting a lot of traction in some of the PVC and fertilizer price increases. Is that the right read?

I think our volume outlook flat to up 1% factors in the 3%. That does assume a 2% volume. We think the market's worse than that. We're gaining some market share to get us to that point. We'll see how it goes, but that's what we have factored in. Eric, you might want to talk specifically about price.

Price. We will get a benefit from PVC. We'll see those price increases now play out in the second half. Some of the finished goods too, that we've talked about, price increases are in. They're more in the 3%-5% range. The offsets to that are keeping it around 3% for now is fertilizer rode up in the second quarter, even a little higher than originally we thought, into the double digits. It's come back down into single digits, with the pressure on urea and those commodities. It's kind of uncertain, and we've baked in that uncertainty coming back from double digits to single digits, a little bit of pressure there. As I highlighted, we have fully lapped the tariff-related benefits that went in in the second quarter last year.

In the second half of the year and originally how we thought about the year before the Middle East disruption is there would be some downward pressure or comp on price. Those kind of balance out and get us into 3%. We do acknowledge if commodities were to rise again, that some of that pressure would go away and we could be higher than that 3% outlook. Where we sit today, we think that's a good read for now.

Got it. All right, makes sense. Best of luck in the second half.

Thanks, Ryan. Next question, David Manthey with Baird.

Please go ahead. Yes, good morning.

Thank you, everyone. First off, just to check the metrics here, price and volume in both the agronomic products and landscaping products. Could you repeat that for me? I missed it on the monologue.

Yeah. Price for agronomic products was 4% for the quarter, and volume was 1%.

Landscape products? Landscape products were flat and price was 3%.

Okay. Thank you for that. To touch on the fuel dynamics here, could you discuss the fuel impact as it relates to freight in and freight out? Just to clarify, the costs that you incur on fuel from your distribution centers to the branches, does that fall into COGS, I would assume? As it relates to freight out on deliveries, have you been able to recoup that via surcharges? Finally, on the freight in stuff, do you have a mechanism to recapture that as we move to the back half of the year? I know it's a lot, but it's a complex issue.

Yeah. On the delivery side or the freight out side, as we mentioned before, we implemented fuel surcharges right at the end of the first quarter. Those have been in place throughout the second quarter and continue today. We have managed the rise in the fuel cost impact to net neutral, but it is dilutive to SG&A as a percentage of net sales. On the freight in side, we're doing a number of things from supply chain management to mitigate that cost. Those costs, as they come in on the products, are translated into price increases. We're managing that to pass through. There is a little bit of a dilutive effect that we've called out in the quarter, but we're doing the best to manage that.

Yeah. David, just to give a magnitude on the freight out side, that fuel increase adds about 15 basis to SG&A with an offsetting benefit to gross margin. It's really a transfer between one from the other. Like Eric said, on the inbound, we capture that naturally through our pricing adjustments.

Okay, thank you. Just mechanically on the costs between distribution center and branch, where do those get picked up in the P&L?

Yeah. They're in cost of goods.

Those are in COGS too. Okay. Thank you very much.

Thanks, David. Yeah. Next question, Mike Dahl with RBC Capital Markets.

Please proceed. Hi. Chris, on for Mike.

Thanks for taking our questions. Just going back to price, could you guys help flush out just the grass seed and PVC expectation for the back half, kind of what that year-over-year change is going to look like?

Yeah, grass seed. Those price changes just have gone in effect here in July. We've been in a number of years of deflation. We are expecting those price increases to translate from the low single-digit to mid-single-digit range here in the second half of the year. Third quarter is our largest grass seed selling quarter. About 40% of grass seed sales occur in the third quarter. There will be some benefit in the second half of the year from grass seed. PVC price increases went in during the second quarter. We'll start to see those benefit here in the second half. It is into softer end markets, so while we expect price to kind of hold up against the several years of high deflation, we'll kind of see how that plays out with price elasticity in the second half of the year.

Got it. Okay. Just on that SG&A and the stepped-up healthcare inflation you guys saw this quarter, is that one time? Or is that kind of something we should be modeling into the back half? Just any comments to provide on drivers of year-over-year leverage in SG&A on the back of that.

Yeah, most of the 30 basis point improvement, it was made up with fuel inflation and then the higher healthcare cost. It's probably a little bit higher in the second quarter than we would expect it to be the rest of the year, but we do expect those to be higher the rest of the year. Healthcare probably a little less than it was in the second quarter. Fuel inflation to continue for now from where it's been.

Understood. Appreciate the color. Thank you.

Next question, Charles Perron with Goldman Sachs. Please go ahead. Thank you.

Good morning, everyone. I just want to go back on the SG&A. You talk about SG&A leverage flat for the full year, which represented an improvement versus the first half. I realize the improvement in volumes will be a key driver. I think you mentioned in your prepared remarks additional actions to drive productivity. I guess, first, did I hear you correctly? How do you think about the potential for additional actions to help you against the weaker market outlook?

Yeah. We are taking additional actions. Obviously, with the volumes being weaker, we aim to adjust to that. We are taking actions in our labor and our other costs to adjust down to the new volumes. As we mentioned, healthcare, which tends to move around during the quarter, we expect that to be a bit better. Obviously, we'll monitor that. The fuel cost, we've assumed that it's going to continue on in. Taking all that together, we do aim to get leverage in the second half to kind of end up flat. We are taking additional actions, really responding around the volumes. We hope to be able to drive higher volumes. We're not assuming that we'll be able to do that at this point in time.

Got it. Okay. That's helpful color. Second, I just want to flip to commercial initiatives. Can you provide an update on where do you see the biggest opportunities for penetration in the second half? How should you think about your ability to outperform your end market as a result, considering the weaker market outlook? Does that change anything in terms of the different preferences or the performance of some of these initiatives?

Right. Good question. No, we feel good about our initiatives on the commercial side. Even with the weak markets, we're continuing to penetrate with siteone.com, and we found that the customers that are digitally engaged with us are growing significantly faster than our average. We're still having good success with our small, medium customers, which continues, whether it's a good market or a tough market. Our private label brands, the growth there is significant. As we said, Pro-Trade's up over 50% for the year. We're still driving strong there with Solstice and Portfolio and our other private brands. That has the dual benefit of driving share gain, but also improving our gross margin. We're happy on our sales force productivity. We're continuing to drive that.

All our initiatives are in kind of full mode, if you will, and they're going to help us navigate through these softer markets. Obviously, as things normalize, we expect that to continue to accelerate and outperform the market.

We improved delivery as well in the first half of the year. The net delivered metric that we track against delivered sales, that achieved leverage in the first half of the year as well.

Yeah. We're on track with how we kind of outlined our long-term contribution annually.

Got it. Thank you for the coloring. Good luck with the quarter.

Thank you. Next question, Andrew Carter with Stifel.

Please go ahead. Hey, thank you.

Good morning. I guess first question I wanted to ask, I mean, you're year two into year two on kind of these branch optimizations. You're talking about SG&A flex. Do you believe that any of your SG&A reductions are impacting your performance in the market? I guess the follow-on to that is, if you look at the branches you've closed, how has retention fared relative to kind of your original assumptions around business you lost, business that you would expect to go to other branches in the area? Thanks. Good question. We are very much focused on growth.

We obviously are taking actions with SG&A. We would never take actions that sacrifice growth. For our closed branches, we're quite happy with our retention. We've done, I think, a great job there Yeah.

in terms of consolidating those into other branches nearby and maintaining those sales. Our SG&A actions are more about productivity improvement. The focus branch efforts involve growing sales as well as cutting SG&A. It's not just a kind of a one quiver Method there. One of the best ways to turn around a focus branch is to improve the customer service and drive share gain. Our SG&A management and reductions, we're doing that carefully. When you have lower volume like we're seeing, you can take prudent actions and not damage our ability to outperform the market.

Yeah. Just a data point. We've always targeted at least to retain 80% of the sales through the consolidation with a nearby branch. We did a study of that in the first half, and we're tracking ahead of that threshold.

Thank you. Then a second question about the additional SG&A actions that you're planning for this year. Do those come back, number one, in a flat market, which you've talked to for 2027? Do they come back in a full, normalized environment? Thanks. Yeah, no, good question.

We're doing them carefully and strategically, when the market comes back, we do get leverage on that. It's not we eliminate and then we just add right back. We are eliminating or reducing, reallocating more aggressively with the eye that we're going to improve productivity. As the market comes back, we'll get good drop down to the bottom line on that growth.

Thanks. I'll pass it on.

Next question, Matthew Bouley with Barclays. Please go ahead. Good morning.

You have Elaine Chu on for Matt Bouley today. Thank you for taking my questions. On the full year guide, I just wanted to clarify. I guess with incrementally weaker volume and SG&A outlook maybe from last quarter, can you parse out maybe what might be coming in a little stronger within the gross margin or some commercial initiatives? Or just maybe on the acquisition front that is leading to an unchanged EBITDA guide?

Yeah, I think like we mentioned, there is a swap out between SG&A and gross margin in terms of fuel. With price moving nicely in the right direction, as we have more SG&A downside, let's say, and as a percent of sales with the weaker volume, there's probably counterbalancing upside that helps us there. We're still very confident in our ability to expand EBITDA margins this year despite the weaker markets. Is there another part of the question?

Got it. Thanks. I guess for my second question, just on a different note, for the Reinders acquisition, any updates around how the integration of that is tracking and in terms of the biggest or most near-term synergies you might realize, what's your outlook on that, and when do you expect to see the synergies fully flowing through?

No. The integration's going well with Reinders. Reinders is a terrific company. It's in the right part of the country for the current market. The market is actually quite strong in the Midwest, where they are up in Wisconsin and Michigan, Ohio, Illinois. From a top-line standpoint, they're doing well. We're getting synergies. We've gotten purchasing synergies. We're putting in product synergies. Our system synergies. They don't have a CRM. We're adopting those things. Integration's on track. We won't have them fully integrated system-wise until early next year. They did quite a bit online themselves, and we're being careful there to make sure that goes seamlessly. The team's terrific. We're working well together and feeling really good about Reinders and long-term growth we can achieve together with Reinders going forward.

I'd add, too, on the synergy front, it's a multi-year benefit. As Doug kind of mentioned, the first-year synergies, but after integration, too, we have distribution logistics synergies that we're going to get nearby to our Wisconsin DC. There'll be some branch optimization opportunities as well going forward in year two.

Right. You'll see a couple consolidations there with their branches and our branches. Good point. We're getting synergies this year. We expect to get synergies really over the next couple of years as we fully join our two teams together.

Great. Thank you. Jeffrey Stevenson, Loop Capital.

Please go ahead. Hi. Thanks for taking my questions today.

Has there been any meaningful change in the competitive environment at distribution from independent or large regional competitors with residential demand coming in softer than anticipated this year?

Yeah, nothing abnormal. When markets are soft, things get more competitive. That happens in any market, regardless of who you're competing against. It's a very competitive market right now. Luckily, we know how to compete hard on the, let's say, the large customers and the places that commercial and the places where all of the competitors go. On the side, through adjacent product lines and through Going after small customers, et cetera, we're able to successfully gain market share. I would describe it as a competitive market. As markets soften, they get more competitive. We're seeing that right now, we know how to manage that, and we're confident we can manage through it and to the other side.

Great. Doug, can you provide more color on the near-term maintenance demand pressure you cited in your prepared remarks? Specifically, when did this begin to show up in the market and the types of maintenance projects customers are temporarily delaying due to higher pricing?

Yeah. When you get the price increases up in the double digits, like we saw in the second quarter with fertilizer, your maintenance customers, which are working off of fixed budgets, tend to dial back a bit on their volumes. That's a short-term strategy to kind of get through. As Eric mentioned, fertilizer has come down a little bit, it can quickly come back because they're managing to an annual budget. At the end of the year, they can adjust their budgets accordingly, depending on where the prices are at the time. It's a short-term phenomenon. We feel like it negatively affected us in the second quarter. If prices come down, it could come back and be a tailwind in the third quarter. We'll see. That tends to happen with fertilizer and combination products that are used every week, every month by these operators to kind of keep in line with their budgets.

Great. Thank you. Next question, Matt Johnson with UBS.

Please go ahead. Hey, good morning, guys.

Appreciate the time. I guess first off, I think so organic daily volume was down, call it almost 2% in the quarter. I think last quarter you guys had mentioned it was down in April as well. I guess, just given kind of all the noise and macro volatility that we've seen over the last few months, I guess, how did demand, or I guess volume, I should say, progress through May and June and then into July?

Great question. As you know, in the first quarter, volume was down 4% in the first quarter. Some of that was a push of the spring from the first quarter to the second quarter with weather. In April, we saw negative volumes, but improved from that. We felt good. We're seeing the spring come through. In May, actually, the volumes were improved over April, and we saw a nice trend. June, however, kind of went the other way, lost momentum. Based on the kind of June and July, I think we're seeing where the real market is. With that spring movement from the first quarter to the second quarter, it's kind of hard to tell where the market is.

Now that we have a full first half and actually another month that we can see what's going on, now we're seeing more clearly where the market is, and we've talked about that we feel that the remodel has kind of taken a step down, and we're at a new level. That's how it progressed. Kind of gave us a little bit of it was hard to tell how much was kind of momentum and how much was just kind of spring coming back through. As it turned out, that momentum got lost in June and July.

That's great. Appreciate that. I guess, changing topics a little bit, just on greenfield expansion, I think at the Investor Day, you guys had talked about accelerating this to opening maybe 5 to 10 new locations per year. Now, clearly demand and market demands has pulled back. You guys have talked about taking some actions on SG&A. I guess, how are you guys thinking about opening new greenfield locations right now? Just, I guess, how are you thinking about branch count more broadly as we move into the back half of 2026?

Good question. As we mentioned, greenfields are going to be a more meaningful part of our strategy going forward. We've typically done three or four a year. We expect to do more, 5 to 10 a year. To date we've done six greenfields, a combination across the country. Obviously, with the market being down, we're very selective in that sense. Specific markets doing greenfields for specific reasons. We're very careful there that we're not overdoing it in a market that's down, et cetera. We are moving ahead on that pace of 5 to 10, and we expect to maintain that over the next several years. Obviously careful in a market like this where the markets are down in certain markets. We can always delay or decide to move ahead depending on the strategic need. Six so far this year.

We may have a couple more through the year, but we're going to be very careful given the environment we're in today.

Thanks, guys. Next question, Sean Cowman with Bank of America.

Please go ahead. Hi, guys.

Thank you for taking my questions. I wanted to follow up on the fixed budgets impacting maintenance demand. Are these typically reset at calendar year, or is it more staggered dependent on the customer itself? I guess the crux of my question is, does this kind of put a ceiling on the agronomic sales for the remainder of the year?

Agronomics is typically steady. I don't think different customers have different ways of budgeting. Customers may be on annual, they may be on a two-year contract. That may fall in the calendar year or et cetera. It'd be hard to answer that specifically. The phenomenon we tend to see is price increases in the two to five range aren't going to affect that. They're planning those in, right? They plan for price increases. When you get commodity like fertilizer that goes up into the double digits, that's when they tend to modify their settings, if you will, to kind of get by. At the end of the day, they got to keep the lawns green, the grasses green, golf courses have to maintain excellent turf for players, et cetera. They can move things around.

I wouldn't say it's a ceiling, but in the short term, if you have double-digit increases, you can't bank on that additive to a 2% volume increase.

Yeah. There's two kind of high seasons, the spring application and fall application season.

Exactly. When we get to the fall, if we're back in single digits, the demand impact.

Yeah reduced demand would be less.

Yeah. It can move demand around during the year, depending on they come up, they come down, et cetera. In this case, we think the second quarter was affected. Fertilizer comes back down again, that could come back in the third.

Okay, great. It sounds like you guys are pretty confident that there'll be more M&A this year. Can you talk about the size of those deals, what you think they could be? Are these going to be larger or smaller deals? How we should think about how that's going to impact share repurchases from here?

I can take the first part of the question. We typically don't talk about exact size deals. We are in active discussions with a number of companies, however, and we do expect to close more deals this year. With that, we think the results will fall in line with a more typical year for us in 2026 and beyond.

Yeah. On the share repurchase question, you can see what we've done so far year to date. We're not done. We kind of have that line of sight for the next little under six months for the year on M&A. Obviously, growth remains the first priority, but we're going to be opportunistic like we have been. We still plan to stay in the range. We started the year even a little below that one to two leverage range, so we expect to be higher than that to close out the year. We're going to continue to take advantage of where the stock price is in repurchases and continue to return capital to shareholders.

Great. Thank you. Thank you.

I would like to turn the floor over to Doug Black for closing remarks.

Okay. Thank you. We appreciate everybody's interest today in SiteOne. I want to take an opportunity to thank our suppliers for supporting us and our customers for allowing us to be their partner. I'd like to thank our associates. We have a tremendous team, and they're working hard to foster success for all of our stakeholders. Look forward to catching up at the end of the next quarter. Thank you. This concludes today's teleconference.

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