SiteOne (NYSE:SITE) Surprises With Q3 Sales

October 30, 2024 at 06:07 AM EDT

SITE Cover Image

Agriculture products company SiteOne Landscape Supply (NYSE: SITE) reported Q3 CY2024 results topping the market’s revenue expectations, with sales up 5.6% year on year to $1.21 billion. Its GAAP profit of $0.97 per share was 15.6% below analysts’ consensus estimates.

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SiteOne (SITE) Q3 CY2024 Highlights:

Revenue: $1.21 billion vs analyst estimates of $1.19 billion (1.4% beat)
EPS: $0.97 vs analyst expectations of $1.15 (15.6% miss)
EBITDA: $114.8 million vs analyst estimates of $121.9 million (5.8% miss)
EBITDA guidance for the full year is $375 million at the midpoint, below analyst estimates of $389.3 million
Gross Margin (GAAP): 34%, in line with the same quarter last year
Operating Margin: 5.8%, down from 7.1% in the same quarter last year
EBITDA Margin: 9.5%, in line with the same quarter last year
Free Cash Flow Margin: 8.8%, up from 7.1% in the same quarter last year
Organic Revenue fell 1% year on year (-2% in the same quarter last year)
Market Capitalization: $6.45 billion

“During the quarter we continued to face market headwinds with 3% price deflation and a softer repair and remodel market. Given these, we were pleased to achieve 2% Organic Daily Sales volume growth to partially offset the price decline,” said Doug Black, SiteOne’s Chairman and CEO.

Company Overview

Known for distributing John Deere tractors and LESCO turf care products, SiteOne Landscape Supply (NYSE: SITE) provides landscaping products and services to professionals, including irrigation, lighting, and nursery supplies.

Specialty Equipment Distributors

Historically, specialty equipment distributors have boasted deep selection and expertise in sometimes narrow areas like single-use packaging or unique lighting equipment. Additionally, the industry has evolved to include more automated industrial equipment and machinery over the last decade, driving efficiencies and enabling valuable data collection. Specialty equipment distributors whose offerings keep up with these trends can take share in a still-fragmented market, but like the broader industrials sector, this space is at the whim of economic cycles that impact the capital spending and manufacturing propelling industry volumes.

Sales Growth

Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, SiteOne grew its sales at an exceptional 14.4% compounded annual growth rate. This is a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. SiteOne’s recent history shows its demand slowed significantly as its annualized revenue growth of 6.9% over the last two years is well below its five-year trend. SiteOne Year-On-Year Revenue Growth

SiteOne also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don’t accurately reflect its fundamentals. Over the last two years, SiteOne’s organic revenue was flat. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline performance. SiteOne Year-On-Year Organic Revenue Growth

This quarter, SiteOne reported year-on-year revenue growth of 5.6%, and its $1.21 billion of revenue exceeded Wall Street’s estimates by 1.4%.

Looking ahead, sell-side analysts expect revenue to grow 4.3% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and shows the market thinks its products and services will see some demand headwinds.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

SiteOne was profitable over the last five years but held back by its large cost base. Its average operating margin of 7% was weak for an industrials business. This result is surprising given its high gross margin as a starting point.

Looking at the trend in its profitability, SiteOne’s annual operating margin decreased by 1.5 percentage points over the last five years. The company’s performance was poor no matter how you look at it. It shows operating expenses were rising and it couldn’t pass those costs onto its customers.

In Q3, SiteOne generated an operating profit margin of 5.8%, down 1.3 percentage points year on year. Since SiteOne’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Earnings Per Share

Analyzing revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

SiteOne’s EPS grew at a remarkable 13% compounded annual growth rate over the last five years. However, this performance was lower than its 14.4% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

Diving into the nuances of SiteOne’s earnings can give us a better understanding of its performance. As we mentioned earlier, SiteOne’s operating margin declined by 1.5 percentage points over the last five years. Its share count also grew by 6.4%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders. SiteOne Diluted Shares Outstanding

Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business.

For SiteOne, its two-year annual EPS declines of 28% mark a reversal from its (seemingly) healthy five-year trend. We hope SiteOne can return to earnings growth in the future.

In Q3, SiteOne reported EPS at $0.97, down from $1.25 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects SiteOne’s full-year EPS of $3.10 to grow by 25.4%.

Key Takeaways from SiteOne’s Q3 Results

We were impressed by how significantly SiteOne blew past analysts’ organic revenue expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates. On the other hand, its EBITDA forecast for the full year missed and its EBITDA fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $142.98 immediately following the results.

Is SiteOne an attractive investment opportunity right now?If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.

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