Nov. 2 2018 12:00 AM

CEO Doug Black says team is working through passing on costs from higher inflation to customers.

SiteOne Landscape Supply Inc., Roswell, Georgia, announced earnings for its third quarter ended Sept. 30, 2018, posting increases across the board.

Net sales for the third quarter 2018 increased to $578.5 million, or 15 percent, compared to $502.4 million for the prior-year period. Organic daily sales increased 5 percent compared to the prior-year period. Momentum from May and June continued into July, the company notes in a press release. However, market growth decelerated as the quarter progressed and was impacted by wet weather during September. Acquired sales growth was approximately $53.9 million, or 11 percent of the overall growth for the quarter, the company reports.

“The SiteOne team delivered double-digit topline growth, expanded our adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin and generated robust cash flow, despite weather and inflationary headwinds during the quarter,” says Doug Black, SiteOne chairman and CEO. “The combination of hurricane Florence and an overall very wet September delayed our fall season and moderated our organic sales growth to 5 percent from a higher pace in May and June. In addition, we continued to experience rising cost inflation in the quarter and our teams remained focused and disciplined in working with our customers to pass through these higher costs. Given these conditions, we are very pleased to have delivered a strong performance.

He adds, “Further, we continued to execute our acquisition strategy by adding four outstanding companies during the quarter and one more in October. With good underlying market demand and a healthy acquisition pipeline, we remain confident in the opportunities for SiteOne as we continue to execute our strategies and create a company of excellence.”

Gross profit increased to $191 million, or 19 percent, compared to $160.3 million for the prior-year period. Gross margin expanded by 110 bps to 33 percent for the third quarter 2018. The increase in gross margin was due to improved pricing and margin contribution from acquisitions, partially offset by higher material and freight costs.

Selling, general and administrative expenses in the third quarter 2018 increased to $151.8 million from $128.1 million in the same period last year, primarily due to the additional contribution from acquisitions and continued investment in strategic initiatives, including e-Commerce.

Net income for the third quarter 2018 increased to $29.9 million, compared to $16.9 million for the same period in the prior year. The increase in net income for the quarter is attributable to organic sales growth, contribution from acquisitions and a lower tax rate.

Adjusted EBITDA increased to $60.0 million for the third quarter 2018, compared to adjusted EBITDA of $48.4 million for the prior-year period.

“Our fall season has been impacted by hurricanes and wet weather in certain key markets which is preventing our customers from making up the spring shortfall,” Doug Black continues. “Additionally, the short-term dampening effect of significant cost inflation has impeded our gross margin improvement for the full year. As a result, we are updating our 2018 Adjusted EBITDA guidance to be in the range of $175 million to $180 million.

“Looking forward, we see solid underlying market conditions supported by robust customer backlogs and we expect the above average cost inflation to continue. Accordingly, we expect our base business organic sales growth to remain steady and the market growth to extend into 2019. We are well-positioned to improve gross margin while beginning to achieve operating leverage on SG&A – both of which should support good adjusted EBITDA expansion in 2019 and beyond.”

Reconciliation for the forward-looking full-year 2018 Adjusted EBITDA outlook was not provided, as the company does not currently have sufficient data to accurately estimate the variables and individual adjustments for such reconciliation.