SiteOne Landscape Supply, Inc. (SITE) Q3 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to the SiteOne Landscape Supply Inc. Third Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, As a reminder, this conference is being recorded. it is now my pleasure to introduce your host, Eric Elema, Chief Financial Officer. Please go ahead.

Thank you, and good morning, everyone. We issued our third 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 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 2 thousand. 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.

Thanks, Eric. Good morning and thank you all for joining us today. We delivered a solid third quarter performance with 3% growth in net sales, 8% growth in adjusted EBITDA and 60 basis points of adjusted EBITDA margin expansion compared to the prior year period. Despite continued softness in underlying market demand, and a delayed fall season. Our teams made good progress on our commercial and operational initiatives and maintained strong cost discipline in the face of lower sales volume. Our acquisitions continue to perform well, and we were able to add another excellent company to SiteOne through acquisition during the quarter. We also continued to leverage our strong cash flow and balance sheet to take advantage of our recent share price weakness. And return $62 million to shareholders during the quarter through our share repurchase program. Our Board recently increased our share repurchase authorization to $500 million and we plan to continue returning capital to shareholders opportunistically in the coming years. While we expect market conditions to be challenging in the near term, We remain focused on the opportunities within our control to gain market share improve productivity and strengthen our competitive position. These self help opportunities combined with our strong cash flow and acquisition strategy, enable us to drive sustained performance and growth for our shareholders this year and in the years to come. I will start today's call with a brief review of our unique market position and our strategy followed by highlights from the third quarter. Eric will then walk you through our third quarter financial results in more detail and provide an update on our balance sheet and liquidity position, Daniel 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 690 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, Yet we estimate that we only have about a 13% share of the very fragmented $36 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. As the only nationwide full product line 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 5, our strategy remains straightforward and unchanged. We leverage the strengths of both our 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 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. With the current challenging end markets, we believe the execution of our strategy 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 6, 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. As you can see from the slide, we expanded our adjusted EBITDA margin last year expect to make further progress this year despite soft markets and significant headwinds. Our ability to deliver EBITDA margin expansion in both soft and healthy market conditions is expected to yield attractive EBITDA growth and improved 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 believe that we are well positioned create solid value for our shareholders in 2026, and significant value over the longer term. We have completed 109 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 modest 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 7 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 and hardscapes lines of business. 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 third quarter performance highlights shown on Slide 8. Net sales increased 3% to $1.29 billion compared to the prior year period. Organic daily sales decreased 1%. Higher price contribution was more than offset by lower sales volume amid continued softness in underlying market demand. While acquisitions continue to contribute to growth. Note that we experienced hot and dry weather in key markets during August and September, which pushed some of the fall season into October. We are encouraged to see those sales come through this month with organic daily sales growth of approximately 2% so far in October yielding modest organic daily sales growth of flat to up 1% for the 4 month period of July through October. Gross profit increased 5% to approximately $459 million and gross margin improved by 80 basis points to 35.5%. Reflecting strong price realization continued execution of our commercial initiatives. SG&A as a percentage of net sales increased 20 basis points to 28.6%. As lower sales volume and higher fuel and healthcare cost more than offset the benefits of our operational initiatives and strong overall cost control. Note that increased fuel cost added approximately 15 basis points to SG&A as a percentage of sales. While our fuel surcharges added an offsetting 15 basis points to gross margin. Adjusted EBITDA increased 8% to $138.3 million and adjusted EBITDA margin improved by 60 basis points to 10.7%. Overall, we were pleased to expand adjusted EBITDA margin despite challenging demand environment and organic daily sales decline. 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, expand gross margin and control SG&A. For organic sales 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 23% during the quarter and over 35% year to date. Our percentage of branches with bilingual capability is nearly 70%, despite adding 12 Reinders branches earlier this year 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 45% year-to-date, versus the prior year period. While also increasing our regular active users by approximately 35%. 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, and helps us increase market share while making our associates more productive. A true win-win. On the SG&A front, we continue to lower our net delivery expense during the third quarter. With 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 significant near-term increases in fuel cost. We have reduced net delivery expense by over 35 basis points year to date and expect to drive additional improvements 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. 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 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 toward our 2030 targets. On the acquisition front, we have added 3 companies to our family so far in 2026, With approximately $125 million in trailing 12 month sales. Our latest acquisition, Patterson Nursery, not only expands our high performing Devil Mountain business, but will help us provide high quality West Coast nursery material to customers across the entire country. We continue to have an active pipeline of additional companies and we expect to close more acquisitions during the remainder of the year. With 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 our very fragmented market. Now, Eric will walk you through the third quarter in more detail. Eric?

Thanks, Doug. I will begin on Slide 9 with some highlights of our third quarter results. Net sales increased 3% to $1.29 billion during the quarter compared to approximately $1.26 billion for the third quarter last year. Organic daily sales decreased 1% driven by lower sales volume. Continued softness in underlying market demand. And a delay in fall applications, as Doug mentioned. Which more than offset higher price inflation. Acquisition sales, which include sales attributable to acquisitions completed in 2025 and 2026 contributed approximately $40 million or 3% to our net sales growth during the quarter. From a demand perspective, conditions remain challenging with sales volume declining approximately 5%, more than offsetting price contribution of 4%. We believe that the delayed start of the fall season reduced the third quarter organic daily sales growth rate by approximately 70 basis points. Pricing strengthened during the quarter and was positive across all product categories, including grass seed and PVC pipe, where prices were up 6%, 2%, respectively. For the first time since the first quarter of 2023, we did not experience deflation in grass seed, PVC pipe or fertilizer products in the quarter. Price contribution is expected to continue to track near 4% for the fourth quarter as inflationary pressures are likely to keep prices elevated. Pricing for the full year is expected to be up approximately 4%. From a regional perspective, performance continued to vary. The Central Region remained our strongest performer. With organic sales growth of approximately 7%, supported by solid underlying market performance, and our stronger market position following the Reinders acquisition earlier this year. California also improved meaningfully from the first half of the year, with organic sales up approximately 1% for the quarter, driven by share gains in the performance of our Devil Mountain Nursery business within that market. Organic sales declined in 3 of our other regions during the quarter due to the later start of the fall application season. However, these regions have recovered with positive organic sales growth so far in October. Sunbelt markets such as Texas, and Arizona continue to face headwinds due to weak new residential construction, and repair and upgrade demand. Organic daily sales for agronomic products which include fertilizer, control products, ice melt, and equipment, decreased 1% during the third quarter due primarily to the delayed fall applications. We also believe the higher prices for certain agronomic products like fertilizer continue to weigh on volume in the short term, 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 third quarter compared to the prior year period. Reflecting weakness in new residential construction and softer repair and upgrade activity offset by price inflation for certain product categories such as irrigation, landscape accessories and outdoor lighting. Gross profit increased 5% to approximately $459 million and gross margin expanded 80 basis points to 35.5%. The improvement was driven primarily by strong price realization including the benefit of fuel surcharges. Continued execution of our commercial initiatives. These benefits were partially offset by higher freight distribution costs resulting from fuel inflation and the addition of our fifth distribution center. which was not operational in the third quarter last year. Selling, general and administrative expenses increased to approximately $369 million from $357 million for the same period last year. SG&A as a percentage of net sales increased approximately 20 basis points to 28.6%. Higher healthcare and fuel costs were the primary headwinds while our operational initiatives and continued cost control efforts helped partially offset these higher costs. As well as the deleverage effect of lower sales volume for the quarter. As Doug mentioned, fuel inflation represented approximately 15 basis points of pressure on SG&A. Which was effectively recovered through fuel surcharges and gross margin. SG&A in the base business on an adjusted basis increased approximately 0.5% compared to the prior year period. The modest increase in base business SG&A was due primarily to the higher healthcare and fuel expenses. Partially offset by the benefits of our cost reduction actions. The effective tax rate was 26.0% for the third quarter compared to 20.4% for the same period last year. Due mainly to a decrease in excess tax benefits year over year. There were no excess tax benefits recognized in the third quarter compared to $4 million in 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 $63.9 million compared with $59.1 million in the prior year period. The improvement for the quarter primarily reflects gross margin expansion partially offset by lower sales volume, higher SG&A and an increase in the effective tax rate. Our weighted average diluted share count was approximately 43.8 million for the third quarter compared to approximately 45 million for the same period last year. During the third quarter, we repurchased approximately 646 thousand shares for approximately $62 million at an average price of $96.29 per share. In addition, as Doug previously covered, our Board of Directors approved an increase of $500 million to our share repurchase authorization post quarter end. We also have approximately $38.3 million remaining for repurchase under the prior authorization. We plan to continue executing opportunistic share repurchases considering the lower stock price. Adjusted EBITDA increased approximately 8% to $138.3 million for the third quarter, compared with $127.5 million in the prior year period. And adjusted EBITDA margin improved 60 basis points year over year to 10.7%. We are pleased with the margin expansion for the quarter given the lower demand environment and the delayed start of the fall application season. I will now provide a brief update on our balance sheet and cash flows statement. As shown on Slide 10. Working capital at the end of the quarter was approximately $1.09 billion compared to $1.06 billion at the end of the same period last year. Cash provided by operating activities decreased $3 million to approximately $126 million primarily due to working capital changes. Partially offset by higher net income. We made cash investments of approximately $24 million for the third quarter compared to approximately $16 million for the same period last year. Capital expenditures for the third quarter were approximately $17 million compared to $10 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 $523 million compared to $423 million at the end of the third quarter last year. Net debt to trailing 12 month adjusted EBITDA was 1.2 times which is within our target leverage range of 1 to 2x and compares to 1x at the same time last year. Available liquidity at the end of the quarter totaled approximately $566 million consisting of $88 million of cash on hand and $478 million of available borrowing capacity under our ABL facility. 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 and complete opportunistic share repurchases, 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 12, we completed the acquisition of Patterson Nursery Sales, through our Devil Mountain business in the third quarter. Patterson is a leading grower and distributor of premium Oregon nursery products serving customers coast to coast. The acquisition expands our nursery product line into the Pacific Northwest strengthens our ability to distribute high quality West Coast nursery products efficiently across the country. It is our third acquisition of the year brings our combined trailing 12 months acquired net sales to approximately $125 million year-to-date. Since 2014, we have acquired 109 companies with approximately $2.2 billion in trailing 12 month net sales added to SiteOne. Summarizing on Slide 13, our acquisition strategy continues to create significant value for SiteOne adding excellent talent and moving us forward towards our goal of providing a full line of landscape products and services to our customers in all major U. S and Canadian markets. 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. We have several letters of intent currently and expect to close more deals in the remaining months of 2026 and into 2027. 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 will wrap up on Slide 14. We believe that the ongoing energy volatility higher interest rates, 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 more resilient maintenance and new commercial construction end markets. Pricing continues to be positive and we believe that pricing will contribute approximately 4%. to net sales growth for the full year. Overall, with the benefit of our commercial initiatives, and with the 50-third week reducing organic daily sales by 80 basis points, We expect full year organic daily sales to be flat to down 1%. In terms of end markets, we are experiencing significant weakness in new residential construction demand which comprises 20% of our sales. And we expect this market to be down double digits for the full year 2026 in line with lower new home completions. New commercial construction demand which represents 14% of our sales, has been solid so far. And we believe it will remain approximately flat in 2026. We believe the repair and upgrade market, which represents 30% of our sales, was down in 2025, and has taken another step down this year with higher interest rates, and inflation and continued weak consumer confidence in existing home sales. While the long term fundamentals for this end market are strong, we believe that repair and upgrade demand will continue to be down through the remainder of this year. Lastly, in the maintenance end market, 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 steady demand so far this year, but there has been some near term volume reduction in response to higher fertilizer prices where customers' maintenance budgets are fixed for the year. Overall, we expect the maintenance end market to be flat in 2026. In total, we expect end market demand to be down this year driven by weakness in new residential construction and repair and upgrade. We expect gross margin to be higher for the remainder of the year. And for the full year 2026 compared to the same periods of 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, higher fuel and healthcare costs and the negative effect of the 50-third week, we expect SG&A as a percentage of net sales to be up for the full year as these factors more than offset our operational initiatives and actions to reduce SG&A. We are managing SG&A tightly, and making necessary changes to optimize our cost structure in anticipation that 2027 will continue to be challenging from a demand perspective. Accordingly, we plan to reduce our workforce and consolidate or close branches in the fourth quarter and incur a corresponding charge to adjusted EBITDA of approximately $6 million to $8 million Despite this charge and the negative effect of the 50-third week, which we anticipate will reduce adjusted EBITDA by an additional $4 million to $5 million in the fourth quarter. Expect to expand adjusted EBITDA margin slightly in fiscal 2026. 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. With all these factors in mind, we expect our full year adjusted EBITDA for fiscal 2026 to be in the range of $425 million to $440 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. You may press 2 if you would like to remove your question from the queue. Before pressing the star keys. We ask that analysts please limit themselves to 1 question and 1 follow-up so that others have a chance to do so as well. 1 moment please while we poll for questions. Our first question comes from David Manthey with Baird. Please proceed with your question.

Thank you and good morning everyone. First of all, on the actions that you are taking here, were any of these contemplated when you were going through your self help items on that Slide 108 from the Investor Day where you waterfalled to 2030. EBITDA? And second and related, does this represent a change in your view on 2027? I think at Investor Day, you expected the market to be flat.

Yes. Good question, David. You know, we are always kind of monitoring where we are at and where we need to be. We have seen the markets have kind of weaken as we have gone through this year. And we have been taking actions to reduce SG&A. When we look into next year, we have not necessarily changed our outlook But we felt like there were additional actions that we could take to not only prepare us for next year to perform, also in line with that long term goal. We have a target for where we want SG&A to be longer term. And these are all just steps to make progress toward that. So we have we have identified additional you know, workforce reductions that we can make, and they are throughout the company kind of targeted in certain areas. And then we have identified other branches largely kind of struggling branches that we are able to consolidate into other branches to improve the performance and the cost structure of the network. And so yes, so it prepares us for next year. Not that we have changed our outlook. We expect next year to be similar to this year but it also sends us toward our long term target, which is important.

Great. Thanks, Doug. that is helpful. And then second on the M&A pipeline. As we look back here, you described it as solid and health and now you are saying it is very active. I am just trying to get a read on if you realistically are looking at your funnel right now, is the current pipeline is it moving in the right direction? Is it getting materially better than it was 90 days ago or a year ago? Or is it just you know, it is good, solid, and we do not know when something will turn into a transaction.

No, David. This is Daniel. I think it is consistent with historically where we have operated. If we land the LOIs that we have under LOI right now, we should deliver towards the bottom end of that range we said at Investor Day, which was between $200 million and $300 million, and we should be in excess of what the average has been the last 12 years. So feel good about where we are going to end this year. And then, you know, the active conversations that we have going on should trickle into delivering a hopefully improved year in 2027, but at least in line with that $200 million to $300 million that we have been quoting for a while.

that is great. Alright, guys. Thank you. Thanks, David.

Our next question comes from Ryan Merkel with William Blair. Please proceed with your question.

Hey, good morning. Thanks for taking the questions. I wanted to start with revenue question. Can you talk about or quantify the impact of the shift in the fall application from 3Q to 4Q? And then with the increase in interest rates, have you guys seen a slowdown in housing or big ticket R&R?

Yes. Think that the. We quantified the impact was about 80 basis points. 70. Yes, 70 basis points on the Q3 rate, On the Q3 rate. So you can kind of add that to the Q3 rate subtracted to what we are calling the run rate in October. Of 2%. And when we make that shift and when we look at kind of the 4 months of July through October, absent the 50-third week effect, we are flat to up 1% is where we would be. So that is the shift. Forget the second part of the question.

Yes. Just in markets, volume. Increase in rates, if you have seen an impact since that happened.

Yes. We have just we have just seen that. And if you if you track completions, they have deteriorated all year in terms of residential completions from last year to this year. Completions are now going to be down 10% to 12%. And so yes, we think that rate increases consumer confidence, the inflation with fuel, I mean, all factors affect not only home completions, but the DIY market as well. Repair and upgrade again, top end of repair and upgrade is strong, folks that are paying cash. But in terms of that middle-- those middle projects, They have really been, I think, affected significantly by all the things going along, including interest rates. And so we will see how things develop. Hopefully, we are seeing kind of a bottom here but we will see how it develops going in through the fourth quarter and into next year.

Okay. But to be clear, you have not seen a step down in activity?

In the last 2 months, call it. Not in the last 2 months, but I mean we have certainly seen it through the year. Yes. Right. Certainly, the overall macro conditions have gotten worse. But we are kind of trending in where we have been the last couple of months. Yes. it is from third and fourth quarter we are seeing the same trend. If you will. Yes.

Okay. And then second question, gross margins, that was a nice result. Was that mostly price cost? And can you quantify how much price cost lifted margins year over year? And I would also be curious for 2026 now, how much price cost will lift gross margins?

Yes. And we called out the fuel surcharge impact. So that is 15 basis points to that 80 basis and then elevated price maybe in the $10 to $20 million range a little better stronger. You know, there is just overall price cost from where it normally runs And our commercial initiatives together is about 20 to 30 basis points, maybe even a little stronger. So it is probably I do not know. 30 plus basis points incremental right now. Looking forward into the fourth quarter, we still expect gross margins to be up year over year. So continuing benefit through the rest of the year.

All right. Thank you.

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

Hi, this is Christopher on for Mike. Thanks for taking our questions. Just on pricing, I was hoping you guys could flesh out what the 4% in Q4 you guys are assuming, how that looks between non commodity when we think about exit rates on the commodity side in particular? What that implies for carryover for next year?

Yes. Exit rate we think approximately around 3%. On the commodity side, we disclosed grass seed in the third quarter was in the mid single digit range. That will continue through the first half of next year, so through the fourth quarter of this year as well. PVC pipe, it is finally positive, but low single digits. there is pressure in the softer demand environment. We will see if that holds up. There could be some pressure on that in the first part of next year. Then fertilizer is volatile, so it is kind of hard to call, but it is kind of it is been elevated. Through the third quarter, and we would expect that kind of remain through the end of the year. We will lap the significant fertilizer price increases in the second quarter. So we would expect that year over year to flatten out, maybe step down. So exit rate, like I said, around 3 for this year. Into the first quarter, and then we will start comping in the second quarter of the significant increases. Finished goods, that is run up a little higher this year. With inflationary pressures, but I would expect next year to be kind of low single digit price increases perhaps in the 1% to 2% range.

Understood. that is helpful. And then just for my second question on SG&A and some of the costs underlying costs there, healthcare, fuel, how are guys thinking about that for as you enter. As you exit this year into next year?

Do you want to comment on it? Yeah. Healthcare has been elevated the last couple of quarters. a little bit of higher run rate, but also kind of episodic expense. And we would expect that to run a little lower going forward. But it is been an elevated SG&A overall. You see the actions that we are taking to take cost out. that is going to benefit us next year. We are planning on the continuation of these current market conditions. So we are working hard to get SG&A in a position where it does not grow next year. On a base business rate. And you can see in the third quarter, base business SG&A was only up 0.5%. So that is that is the high level thinking.

There another part of your question I did not address?

Yes. it is about fuel.

Oh, fuel. Yes. Well, fuel is going to continue to be a headwind right now. Elevated pricing diesel up, what, 70% year-over-year. We have effectively passed that on to keep that net neutral on an EBITDA basis, but it is been running about 15 basis points a quarter deleverage impact, but corresponding benefit in gross margin.

Understood. Appreciate that.

Our next question comes from Charles Perron-Piché with Goldman Sachs. Please proceed with your question. Charles Perron-Piché: Thank you. Good morning, everyone. First, I just want to talk about pricing a little bit more. With the factors you just highlighted, Eric, and the outlook potentially for 2027, how do you approach the potential for testing price elasticity with certain end markets and customers considering, the weaker macro backdrop that you are seeing out there?

I missed the first part. Did you say testing? Yes, testing the price elasticity, sorry. Yes. Well, we are our market is effective in passing on price increases. So on the elasticity side, there has been some of that, especially on the-- I think fertilizer pricing where there is been short term volume negative volume impacts in skipped applications but that pricing has been effectively passed on. And that is typical. You know, of all of our products. So in terms of testing, we work closely with our customers to ensure that we have the right pricing with them. And we could-- we make decisions where we need to, where we need to adjust price to continue to maintain our relationships.

Yeah. The for most of our products, there is not a great deal of elasticity We are talking about kind of low to mid single price increases. The majority of the cost of installed product in terms of, like, irrigation or hardscapes or nursery is the labor of the contractor and the material cost of that job is actually pretty low. So price elasticity tends not to be high. Where we do see it is more in fertilizer chemical space where you have maintenance contractors with fixed budgets And when those prices move, significantly, then they tend to cut back on applications in the short term. They cannot do that for a long term strategy. And we have seen some of that this year We would not anticipate that next year. I mean the prices fertilizer prices were up this year. They are going to level out year over year. Budgets get reset And so at this point, we would not expect that to be a major factor for next year's volume. But we will see how things progress. Charles Perron-Piché: Got it. that is good color. And it is good to see the restructuring initiatives announced this morning and your ability or willingness to protect the SG&A leverage But considering the shifting market condition, does that influence the timing and magnitude of some of the initiatives that you piloted and invested in terms of focus branches or delivery optimization. And the and the timing of some of those efforts to drive further SG&A deleverage going forward.

Well, it obviously has accelerated I mean, we are still we have been very careful that any reductions that we are making does not degrade our ability to drive our initiatives in terms of focused branch improvement, net delivery, cost reduction, private label growth, small customer growth, organic growth in general. So we are trimming where it is where we are able. And obviously, some markets are off more than others. Not all markets are equal. But we are doing it in a way that preserves our ability to drive our initiatives and continue to create that EBITDA margin expansion that we are looking for and anticipate that we will be successful next year in making significant progress there. Yes. It keeps us on track towards how we lay that out. At Investor Day to the 13% target. Right. We are going to get a little bit this year obviously, the 50-third week and the charge itself will mitigate some of our progress this year, but we are looking longer term toward 2030, and we expect to be on track to our goals when you combine this year and next year. Charles Perron-Piché: Got it. that is good detail, guys. Thank you for the details and good luck for the quarter. Thank you.

Our next question comes from Matthew Bouley with Barclays. Please proceed with your question.

Good morning. You have Elaine Ku on for Matthew today. Thank you for taking my questions. So I just wanted to clarify for Q4 first. If October is currently trending up 2% in organic daily sales, before Q4 appears to be applied down. I guess, what are your assumptions there, maybe around volume? Is there any conservatism? And kind of how does that lead into 2027?

Yes. The 2% growth for October includes the catch up or recovery of what was pushed out of September. So on a year to date basis, we are up in that flat to 1% range. And we would expect that trend to continue across November and December. So if you look at the overall fourth quarter, and year to full year, we would be slightly positive, but we have that 50-third week, which happens right at the end of the year. that is dilutive in about 80 basis point range. So that is where you get flat to down full year guide.

Got it. Thanks. And I guess on maybe the labor front, have you observed anything around like changing labor supply? Or just what are you seeing there?

No. We have seen that be pretty steady. I mean, these are tougher times. So if anything, the constraint on labor is a bit better. But it is still there for our customers. And but we in terms of like, we are able to you know, hire the people that we need to drive our business. So it is not a significant constraint for us. I would say it is still a moderate constraint for our customers. But not as pronounced as it would have been a couple of years ago.

Okay. Our next question comes from Matthew Johnson with UBS. Please proceed with your question.

Hey, good morning guys. Appreciate the time. I guess first off, I think you guys said you expect $6 million to $8 million charge to EBITDA related to the branch closures. Now I think this compares to roughly and could be wrong, but I think it compares to about a $4.5 million charge last year when you closed 20 branches. So I guess, is there just any kind of help you can give at least directionally in terms of how many branches you are expecting to close in the fourth quarter and how much that could impact sales next year?

Right. Yes. So just to clarify, the charge includes reduction in force and branch closures in the larger component is reduction in force. The branch closures is actually a lower amount compared to the last 2 years of closures. The impact on a cost basis is less than half of what it was a year ago. And the number of branches closing is less than what we have done in the last couple of years. So just to clarify those points.

that is great. Thanks, Eric. And then I guess second, I guess as demand has come under pressure this year, how would you guys characterize just the competitive intensity across the industry? I guess particularly, is there any kind of difference in the competitive intensity across customer size, whether it be small, medium, large customers, and kind of where it is specifically in the business you are seeing competition is intensifying anywhere.

Yes. So obviously, in tougher times, the competition intensifies, right? So there is a significant amount of competition out there. It really tends to be focused on the larger customers, right? I mean those are the ones that are easiest to go after. And so that is where we are we know how to fight as hard as anybody in the market. Feel like we are holding our own there with the, you know, with the larger customers, but there is certainly it is certainly a competitive market there. We have seen steady progress in terms of share gain and success with the small- and medium-sized customers. that is a harder set to go after. You have to be more broad based and more organized with marketing, et cetera. And so we have seen continued success there, and we feel like we are continuing to gain market share there. So yes, very competitive market. Focus tends to be on the larger customers. We have the capability of being as competitive as anybody. In the market. And then we continue to court the small, medium customers and are having some success there.

that is great. Thanks, Doug.

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

Hi, thanks for taking my questions today. So Doug, you talked about some temporary maintenance project delays due to higher commodity pricing, such as fertilizer, beginning at the end of the second quarter. Has that trend moderated at all as we move through the back half? Or is that continuing to be the case with some of the increases we have seen on the commodity side of the business?

Yes. I think we have seen that. I mean it is been pretty consistent through that period starting in the second quarter. I mean, obviously, you have the fall season. Right? And the fall season is September and October. And so, yes, we have seen it be consistent in September and October. And that is kind of how it runs. Right? If prices are elevated as you enter into the season, you are going to make those calls and make those adjustments during the season. As the fall season dissipates and you go into the winter, then obviously, you have a chance to adjust your budgets and get prepared for the spring. And so that 's how that elasticity works. And so it is been consistent through the fall. The fall season. And through where we have been so far in October.

Got it. And obviously, residential continues to see headwinds, but commercial remains resilient. You maintain your flat guidance there. Just if you provide an update on kind of bidding activity or backlogs as you kind of move through the end of the year, end of 2026 and whether you expect the resilience to continue moving forward?

Yeah. that is good. On the commercial market, which is which is 14% of our sales, has been stable. it is been flat. I would say it is still stable. Through the remainder of this year, and we will kind of see how it works into next year. I would call backlogs stable. Our bidding activity is, I would call it, flat, maybe slightly down. As we end this year. But our customers tend to be optimistic. So we will see Do not have a big lens in the next year, but we will see how things develop. And then just 1 more part on the maintenance side. I mean the maintenance, where we were particularly strong We feel like we can gain market share. We are gaining market share. We are seeing a strong October in terms of maintenance. And so it is encouraging. Even though we still think that elasticity is out there. We are having a very good finish of the season. We have had a strong reorder program this year. And feel great about our maintenance business as we go into next year. And maintenance 36% of our business. So it is a bigger, more important factor, than the new commercial. Great.

Thanks, Doug.

Our next question comes from Andrew Carter with Stifel. Please proceed with your question.

Hey, thank you. Good morning. I wanted to press a little bit on the competition question and I guess 2 parts. 1 of the first things you said, I want to untangle your comments around PVC. You mentioned that it is inflationary, but you are kind of watchful of the market out there, what it would take. I want to make sure, is that a manufacturer comment, or is that you making specific actions that is you know, divorced from the manufacturer, which would be a break with the. with your typical way pricing. The second on the competition, you mentioned you mentioned large customers. So I just wanted to specifically ask, is that Heritage? What are you seeing from them and their markets? And I guess I will give you a chance to kind of address what they said earlier this year on a call. Which is that we are outperforming our peers by hundreds and hundreds of basis points Anything you can help with that. Thanks.

Eric, I think you referred to the manufacturer, right? Yes. On the PVC front, I mean, the price increases have gone in. They went in during the second quarter. So it is just into the softest end market, the more indexed to new residential construction. So there is obviously pressure there. I think inflationary outlook would be like we are running low single digits now. I think that would hold through the rest of the year. And I guess we will see in the first part of next year But a reminder, PBC as a percentage of our overall sales is on the 3% to 4% range. So I would not necessarily focus overly much on PVC. And we are a small part of the broader pipe market. Right? So the pipe manufacturers make their decisions I think the point there is that, hey, in weak markets, it may get more competitive for them with each other. And they may that may cause them to lower prices. But price has held up since that May increase for this year.

Right. So that is purely speculative. In terms of the large customers, it is everybody. I mean, Heritage is not the only 1 out there, you know, that is competitive. You know, you. I mean, Horizon, are small competitors. Yes. So I would broaden it more than Heritage. Obviously, tends to be very competitive But you know, when markets get competitive, when demand is down, Folks are fighting for the for the demand that is there, right? And it tends to be centered on the large customers. But we know how to you know, how to battle that as well as anybody. And the hundreds and hundreds of basis points, I just I cannot react to that because it is we will we will see. If they want to disclose their numbers, then that is that is fine. But we feel like we are holding our own and doing well.

Thanks. I will pass it on.

Our next question comes from Connor Winston with Truist Securities. Please proceed with your question.

Hi, good morning. Connor Winston on for Keith Hughes. Just a quick question regarding the increased share repurchase authorization. Was wondering how we should think about capital allocation priorities going forward. And so will M&A remain kind of the preferred use of cash when attractive opportunities arise? Or should we expect a greater emphasis on buybacks?

Yes. So, you have seen an elevated buyback rate this year, but M&A investing in our growth remains number 1. We laid out long term run rate assume more normalized conditions where M&A is $200 million to $300 million of acquired annual sales. Obviously, the deployment of capital is a little less than that. And share repurchases would be in the $100 million to $200 million range. This year, we are going to be over top end of that with share repurchases. The lower stock price provides that opportunity as an attractive deployment of capital. And in the near term, we would push up but stay within our 1 to 2 times leverage range. So you would see the last few years, it is been on the low end of that range, where we would push up more to the midpoint and be opportunistic on buying back shares. So expect a continuation of that in the near term and with this increased authorization, it gives us that latitude now for years ahead to pursue and execute our share repurchase and capital deployment strategy.

Great. And then could you also help frame kind of the magnitude you are seeing in commercial relative to residential growth? And maybe how you expect to see that gap evolve heading into 2027?

Yes. So we have seen commercial flattish. And new residential down double digits with home completions. We are indexed to single family residential much more than the multifamily And so yes, that is what we have seen. As we look into next year, residential starts are actually down kind of mid single digits. So the we would expect the market in terms of residential for us to be less down next year. We think this is probably a bottom. But, you know, too early to call, and commercial seems stable as we as we exit this year.

Great. Thank you guys for taking my question. Good luck with the quarter. Thank you.

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.

Yes. So thank you all again for joining us. We appreciate your interest in SiteOne. And we look forward to speaking to you again next year after we have completed 2026. Also a big thank you to our terrific associates for all that they do. Our suppliers for supporting us and our customers for allowing us to be their partner. Thank you.

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