SiteOne Landscape Supply - Earnings Call - Q2 2025

Executive Summary

• Q2 delivered modest top-line growth but stronger profitability: net sales +3% YoY to $1.462B, gross margin +30 bps to 36.4%, and Adjusted EBITDA +8% to $226.7M with margin +60 bps to 15.5%. EPS (GAAP diluted) was $2.86 vs $2.63 last year.
• Results were essentially in line with S&P Global consensus: revenue slight miss ($1.462B vs $1.468B estimate*) and EPS essentially in-line ($2.93* Primary EPS vs $2.93* actual on S&P basis; GAAP diluted $2.86 reported). Values retrieved from S&P Global.
• Management maintained FY25 Adjusted EBITDA guidance of $400–$430M and signaled continued margin expansion on SG&A leverage, private label, delivery efficiency, and focus-branch improvements; pricing expected flat in Q3 and +1–2% in Q4, with grass seed deflation the primary dampener.
• Mix trends: maintenance remains solid; new residential and repair/upgrade weaker; commercial flat; agronomic products +7% organic daily sales; landscaping products −1%.
• Capital allocation supportive: $54.3M of buybacks in Q2; ~ $250M remains on authorization per Q&A; liquidity ~$578M; leverage 1.3x TTM Adjusted EBITDA.

What Went Well and What Went Wrong

• What Went Well

  • SG&A leverage and margin expansion despite flat organic daily sales; Adjusted EBITDA margin +60 bps to 15.5% on improved gross margin and cost discipline. “We are executing our initiatives well, achieving excellent SG&A leverage, good gross margin improvement, and continuing to gain market share”.
  • Strategic initiatives delivering: private label growth, digital acceleration (+130% 1H digital sales), delivery efficiency (−40 bps net delivery expense on delivered sales), and focus-branch improvement (+200 bps margin in 1H).
  • Accretive footprint expansion: Green Trade closed in Q2; Grove Nursery and Nashville Nursery closed post-quarter, strengthening nursery leadership in key markets.

• What Went Wrong

  • Top-line softness in key end-markets (new residential, repair/upgrade) and weather headwinds (rain across Sun Belt/East Coast) pressured landscaping product volume (−1% organic daily sales).
  • Commodity deflation persisted (PVC −15% YoY, seed −9% YoY in Q2) and expected further seed deflation in Q3; pricing only flat in Q2 and Q3.
  • Working capital and inventory positioned ahead of tariffs weighed on operating cash flow YoY (Q2 CFO ~$137M vs ~$147M prior year).

Transcript

Operator (participant)

Greetings and welcome to the SiteOne Landscape Supply econd quarter 2025 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 your host, John Guthrie, Executive VP and Chief Financial Officer. Thank you. You may begin.

John Guthrie (EVP and CFO)

Thank you and good morning, everyone. We issued our second quarter 2025 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 Scott Salmon, Executive Vice President, Strategy and Development. Before we begin, I would like to remind everyone that today's press release, slide presentation, and the statements made during this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission.

Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. A reconciliation of these measures can be found in our earnings release and in the slide presentation. I would now like to turn the call over to Doug Black.

Doug Black (Chairman and CEO)

Thanks, John. Good morning and thank you for joining us today. We are pleased to achieve continued solid results during the second quarter, with 3% net sales growth and 8% growth in Adjusted EBITDA, despite broader economic uncertainty and softness in our end markets. Our teams are executing our initiatives well, yielding excellent SG&A leverage, good gross margin improvement, and meaningful market share gains. We also benefited from a more favorable price-cost environment, with overall flat pricing for the quarter. Finally, we added two excellent companies to SiteOne in July, expanding our full product line capability in those local markets. Overall, with strong teams, a winning strategy, and excellent execution of our commercial and operational initiatives, we are delivering solid performance and growth in 2025, despite softer end markets, and are in a strong position to accelerate our performance and growth in the coming years.

I will start today's call with a brief overview of our unique market position and our strategy, followed by some highlights from the quarter. John Guthrie will then walk you through our second quarter financial results in more detail and provide an update on our balance sheet and liquidity position. Scott Salmon will discuss our acquisition strategy, and then I will come back to address our latest outlook before taking your questions. As shown on slide four of the earnings presentation, we have a strong footprint of more than 680 branches and four distribution centers across 45 United States and six Canadian provinces. We are the clear industry leader, over three times the size of our nearest competitor and larger than two through 10 combined. Yet, we estimate that we only have about an 18% share of the very fragmented $25 billion wholesale landscaping products distribution market.

Accordingly, our long-term opportunity to grow and gain market share remains significant. We have a balanced mix of business, with 65% focused on maintenance, repair, and upgrade, 21% focused on new residential construction, and 14% on new commercial and recreational construction. As the only national full product line wholesale distributor in the market, we also have an excellent balance across our product lines as well as geographically. Our strategy to fill in our product lines across the U.S. and Canada, both organically and through acquisition, further strengthens this balance over time. Overall, our end market mix, broad product portfolio, and geographic coverage offer us multiple avenues to grow and create value for our customers and suppliers while providing important resilience in softer markets.

Turning to slide five, our strategy is to leverage the scale, resources, functional talent, and capabilities that we have as the largest company in our industry, all in support of our talented, experienced, and entrepreneurial local teams to consistently deliver superior value to our customers and suppliers. We have come a long way in building SiteOne and putting the teams and systems in place to fully execute our strategy at a high level across each of our product lines. In the current challenging market environment, we are making good progress in leveraging our capabilities to drive tangible results with consistent market share gains, improved SG&A leverage, and steady gross margin improvement. Through our commercial and operational initiatives, we believe that we are delivering industry-leading value for our customers and suppliers and solid performance improvement and growth for our shareholders this year.

Importantly, we are gaining momentum for continued success in the years to come. These initiatives are complemented by our acquisition strategy, which fills in our product portfolio, moves us into new geographic markets, and adds terrific new talent to SiteOne. Taken all together, we believe our strategy creates superior value for our shareholders through organic growth, acquisition growth, and EBITDA margin expansion. On slide six, you can see our strong track record of performance and growth over the last eight years. From an Adjusted EBITDA margin perspective, we benefited from extraordinary price realization due to rapid inflation in commodity products during 2021 and 2022. In 2023 and 2024, we experienced significant headwinds as those commodity prices have come down.

In 2024, we also experienced further Adjusted EBITDA margin dilution from the acquisition of Pioneer, a large turnaround opportunity with great strategic fit, and from our other focus branches as a result of the post-COVID market headwinds. We expect pricing to transition in 2025 from a -1% in the first quarter to a positive 1%-2% in the fourth quarter, setting us up for more normal inflation and price realization in 2026. Furthermore, we are achieving excellent progress with Pioneer and our other focus branches year to date and expect to continue achieving improvements over the next several years as we bring their performance up to the SiteOne average. In summary, we are positioned to drive good Adjusted EBITDA margin improvement in 2025 and in the coming years as we execute our initiatives and as the market headwinds turn to tailwinds.

We completed our 100th acquisition in March with over $2 billion in acquired revenue added since the start of 2014. These milestones demonstrate the strength and durability of our acquisition strategy. Our pipeline of potential deals remains robust, and we expect to continue adding more companies in 2025 to support our growth. These companies strengthen SiteOne with excellent talent and new ideas for performance and growth. Given the fragmented nature of our industry and our modest market share, we have a significant opportunity to continue growing through acquisition for many years to come. Slide seven shows the long runway we have ahead in filling in our product portfolio, which we aim to do primarily through acquisition, especially in the nursery, hardscapes, and landscape supplies categories. We are well connected with the best companies in our industry and expect to continue filling in these markets systematically over the next decade.

I will now discuss some of our second quarter highlights, as shown on slide eight. We achieved 3% net sales growth in the second quarter, with flat organic daily sales and 3% growth due to acquisitions. Organic sales volume was flat during the second quarter, reflecting broader end market softness offset by continued share gains. Pricing was also flat, which was in line with expectations as we benefited from a more favorable price-cost dynamic as the quarter progressed. As expected, the growth in maintenance-related demand remained steady in Q2, and with the benefit of market share gains, we achieved 7% organic daily sales growth with our agronomic products. The repair and upgrade market remained soft as expected, and the new residential construction market was also down, especially in markets that were strong last year, like Texas, Florida, Arizona, and California.

Accordingly, our landscaping products were down 1% for the quarter, which we also believe reflects some market share gains. Overall, we believe that we are continuing to outperform the market consistently through our commercial initiatives, which, with the recovery in pricing, will allow us to achieve positive organic daily sales growth for the remainder of the year, even in a down market. Gross profit increased 4% and gross margin improved by 30 basis points to 36.4% due to higher price realization, gains from our initiatives, and contributions from acquisitions. Our acquisitions, which were primarily nursery and hardscapes businesses, operated at a higher gross margin but also operated at a higher SG&A. Our SG&A as a percent of net sales decreased 40 basis points to 23.9% compared to the prior year period.

For the base business, SG&A as a percent of net sales on an adjusted basis decreased approximately 60 basis points, demonstrating our strong execution and follow-through on key initiatives despite the flat organic daily sales. With disciplined expense management, improved operating leverage, and good progress with our focus branches, we were able to achieve meaningful leverage in our business. We are excited to continue gaining leverage through our initiatives, aided in the second half by improved pricing and expected positive organic daily sales growth. Adjusted EBITDA for the quarter increased 8% to $226.7 million, and Adjusted EBITDA margin improved 60 basis points to 15.5% due to higher net sales, improved gross margin, and increased SG&A leverage. With pricing continuing to normalize and with our commercial and operational initiatives yielding stronger results, we are pleased to resume Adjusted EBITDA margin expansion this year and expect continued improvement in the coming years.

In terms of initiatives, we are executing specific actions to improve our customer excellence, accelerate organic growth, expand gross margin, and increase SG&A leverage. For gross margin improvement, we continue to increase sales with our small customers faster than our company average, drive growth in our private label brands, and improve inbound freight costs through our transportation management system. These initiatives not only improve our gross margin but also add to our organic growth as we gain market share in the small customer segment as well as across product lines with our competitive private label brands like ProTrade, Solstice Stone, and Portfolio. Collectively, these three brands grew by over 30% in the first half of this year.

To further drive organic growth, we continued to increase our percentage of bilingual branches from 63% to 67% during the first half of the year and are executing Hispanic marketing programs to create awareness among this important customer segment. We are also making great progress with our sales force productivity as we leverage our CRM and establish more disciplined revenue-generating habits and processes among our inside sales associates and our over 590 outside sales associates. This year, our outside sales force is covering approximately 10% more revenue than in 2024 with no additional headcount, allowing us to achieve higher organic sales growth at a lower cost. Our digital initiative with siteone.com is also helping us to drive organic daily sales growth as customers who are engaged with us digitally grow significantly faster than those who are not. We've grown digital sales by over 130% in the first half of 2025.

We continue to cultivate thousands of new regular users of siteone.com, helping customers to be more efficient and helping us to increase market share while making our associates more productive, a true win-win-win. Through siteone.com and our other digital tools, we are accelerating organic growth, and we believe we are outperforming the market. With the benefit of DispatchTrack, which allows us to more closely manage our customer delivery, we are now able to improve both associate and equipment efficiency for delivery while more accurately pricing this service. We believe that we can significantly lower our net delivery expense while improving the experience for our customers. So far this year, we have reduced our net delivery expense by over 40 basis points on delivered sales, which represents approximately one-third of our total sales.

This is a major initiative, and we expect to make significant progress this year and the next two to three years. Last year, we mentioned that we are intensely managing our underperforming branches or focus branches to ensure that they have the right teams, the right support, and are executing our best practices to bring their performance up to or above the SiteOne average. As a part of these aggressive efforts, we consolidated or closed 22 locations in 2024 to strengthen our operations and better serve our customers at a reduced cost. In the first half, we improved the Adjusted EBITDA margin of our focus branches by over 200 basis points, and we expect to gain a meaningful Adjusted EBITDA margin lift for SiteOne in the coming years as we improve the performance of these branches.

Taken all together, we are gaining momentum with our commercial and operational initiatives, which are improving our capability to drive organic growth, increase gross margin, and achieve operating leverage. On the acquisition front, as I mentioned, we added two excellent companies to our family in July and have added four companies and approximately $30 million in trailing 12-month sales to SiteOne so far in 2025. We are having conversations with a lot of companies, but many of the more advanced discussions are with smaller companies. We expect that 2025 will be a lighter than normal year in terms of acquired revenue, even as we are aggressively cultivating key targets for future years.

We remain well-positioned to grow consistently through acquisition for many years, with an experienced acquisition team, broad and deep relationships with the best companies in the industry, a strong balance sheet, and an exceptional reputation for being a great long-term home for companies in our industry. In summary, our teams are doing a good job of managing through the near-term market environment, leveraging our many opportunities for improvement, prudently adding new companies to SiteOne through acquisition, and building our company for the long term. Now, John will walk you through the quarter in more detail. John?

John Guthrie (EVP and CFO)

Thanks, Doug. I'll begin on slide nine with some highlights from our second quarter results. There were 64 selling days in the second quarter, which is the same as the prior year period. Organic daily sales were flat in the second quarter compared to the prior year period, as solid growth in the maintenance end market was offset by softer demand in the new residential construction and repair and upgrade end markets. Overall, we saw both flat volume and flat pricing for the quarter. This was the first time since the second quarter of 2023 that price deflation did not negatively impact sales. Pricing improved sequentially from 1% deflation in the first quarter to flat in the second quarter due to tariff-related supplier price increases and as we lapped some of last year's price decreases.

We estimate our exposure to tariffs is approximately 10% to 15% of sales, and in those products, we saw manufacturers start to pass through the tariff cost with higher prices. Price deflation for commodity products like PVC pipe and grass seed, which account for approximately 7% to 8% of annual sales, continued to negatively impact sales growth, though the impact was smaller than in prior quarters. In the second quarter, pricing for PVC pipe was down approximately 15% year-over-year, and pricing for grass seed was down approximately 9% year-over year. We expect grass seed prices to decline further in the third quarter and be down 10% to 20% over the year for the remainder of the year. Taken all together, our revised outlook for pricing for the full year is approximately flat.

We expect pricing to be flat in the third quarter due to seed deflation and up 1% to 2% in the fourth quarter. Given the changing nature of tariffs, there is greater uncertainty than normal in our outlook. Organic daily sales for agronomic products, which includes fertilizer, control products, ice mold, and equipment, increased 7% for the second quarter due to solid demand in the maintenance end market and market share gains. Organic daily sales for landscaping products, which includes irrigation, nursery, hardscapes, outdoor lighting, and landscape accessories, decreased 1% for the second quarter due to softer demand in the new residential construction and the repair and upgrade end markets. Rainy weather across the Sun Belt and East Coast also contributed to the weaker landscaping products' volume. Geographically, five out of our nine regions achieved positive organic daily sales growth in the second quarter.

Regions with a larger mix of agronomic products performed better. Texas, which was our strongest sales growth market last year, is facing significant headwinds this year due to the softer new construction end market. Acquisition sales, which reflect the sales attributable to acquisitions completed in 2024 and 2025, contributed approximately $41 million or 3% to net sales growth. Gross profit increased 4% to approximately $531 million for the second quarter compared to approximately $510 million for the prior year period. Gross margin for the second quarter expanded 30 basis points to 36.4% due to improved price realization, gross margin improvement initiatives, and a positive contribution from acquisitions with higher gross margin. Selling, general and administrative expenses, or SG&A, increased 2% to approximately $349 million for the second quarter. SG&A, as a percentage of net sales, decreased 40 basis points in the quarter to 23.9%.

The SG&A leverage improvement reflects our actions to increase efficiency and better align operating costs with current market demand. For the second quarter, we recorded an income tax expense of approximately $45 million compared to approximately $40 million in the prior year period. The effective tax rate was 25.4% for the second quarter compared to 24.9% for the prior year period. The increase in the effective tax rate was primarily due to a decrease in the amount of excess tax benefits from stock-based compensation. We continue to expect the 2025 fiscal year effective tax rate will be between 25% and 26%, excluding discrete items such as excess tax benefits. Net income attributable to SiteOne for the second quarter increased 7% to $129 million due to increased net sales, improved gross margin, and SG&A leverage.

Our weighted average diluted share count was approximately 45.1 million for the three months ending June 29, 2025, compared to 45.6 million for the prior year period. We repurchased approximately 466,000 shares for $54.3 million in the second quarter. This was our largest share repurchase quarter since we initiated the plan in October 2022. Adjusted EBITDA increased 8% to $226.7 million for the second quarter compared to $210.5 million for the prior year period. Adjusted EBITDA margin improved approximately 60 basis points to 15.5%. Adjusted EBITDA includes Adjusted EBITDA attributable to non-controlling interest of $1.8 million for the second quarter of 2025 compared to $0.9 million for the second quarter of 2024. Now I would like to provide a brief update on our balance sheet and cash flow statement as shown on slide 10.

Working capital at the end of the second quarter was approximately $1.06 billion compared to $1.01 billion at the end of the same period prior year. The increase in working capital is primarily due to increased purchases of inventory ahead of tariffs. Net cash provided by operating activities was approximately $137 million for the second quarter compared to approximately $147 million for the prior year period. The decrease in operating cash flow primarily reflects the higher inventory purchases. We made cash investments of approximately $17 million for the second quarter compared to approximately $113 million for the same period prior year. The decrease reflects reduced acquisition investment compared to the same period last year. Capital expenditures for the quarter were approximately $14 million compared to approximately $12 million for the prior year period. The increase reflects a real estate investment at one of our branches.

Net debt at the end of the quarter was approximately $532 million compared to approximately $524 million at the end of the second quarter of the prior year period. Leverage was 1.3x our trailing 12-month Adjusted EBITDA, which is consistent with the prior year period. As a reminder, our target year-end net debt to Adjusted EBITDA leverage range is one to two times. At the end of the quarter, we had available liquidity of approximately $578 million, which consisted of approximately $79 million cash on hand and approximately $499 million in available capacity under our ABL facility. Our priority from a balance sheet and funding perspective is to maintain our financial strength and flexibility so we can execute our growth strategy in all market environments. I will now turn the call over to Scott for an update on our acquisition strategy.

Scott Salmon (EVP of Strategy and Development)

Thanks, John. As shown on slide 11, we acquired one company in the second quarter and two more post-quarter, bringing the total to four acquisitions year to date with a combined TTM net sales of approximately $30 million. Since 2014, we have acquired 102 companies with approximately $2 billion in TTM net sales added to SiteOne. Turning to slides 12 through 14, you will find information on our most recent acquisitions. On March 31, we acquired GreenTrade Nursery, a single location wholesale distributor of nursery products in Jasper, Georgia. The addition of GreenTrade extends our leading nursery position further into the fast-growing North Atlanta markets, providing our customers in these markets with greater access to high-quality nursery products. On July 24, we acquired Grove Nursery, a single location wholesale distributor of nursery products in Northwest Minneapolis, Minnesota.

The addition of Grove Nursery now enables us to provide a full range of products to our customers in the Twin Cities. Also, on July 24, we acquired Nashville Nursery, a single location wholesale nursery in Northwest Nashville, Tennessee. Joining forces with Nashville Nursery further strengthens our position as the leading wholesale distributor of nursery products in Central Tennessee. Summarizing on slide 15, our acquisition strategy continues to create significant value for SiteOne by adding excellent talent and moving us forward toward our goal of providing a full line of landscape products and services to our customers in all major U.S. and Canadian markets. As we noted during our first quarter earnings call, our acquired revenue may be lower this year, but we have a large pipeline of deals in process, and we are actively building relationships with many others.

We have significant runway to grow and create value through acquisitions this year and in the years to come. As always, I want to thank the entire SiteOne team for their passion and commitment to making SiteOne a great place to work and for welcoming the newly acquired teams when they join the SiteOne family. I will now turn the call back to Doug.

Doug Black (Chairman and CEO)

Thanks, Scott. With continued market uncertainty, elevated interest rates, weak consumer confidence, and low existing home sales, we expect the end market demand for landscaping products in total to be slightly down year over year in the second half of 2025. That said, as John mentioned, we expect pricing to continue to improve as deflation in grass seed and PVC pipe is more than offset by price increases in other products. We also expect to continue achieving market share gains through our commercial initiatives, which should contribute to our organic sales growth during the remainder of the year. In terms of end markets, we have seen a decline in new residential demand this year, especially in the high-growth markets across the Sun Belt. Accordingly, we expect the demand for landscaping products for new residential construction, which comprise 21% of our sales, to be down during the remainder of 2025.

Continued elevated interest rates, housing affordability challenges, and lower consumer confidence are constraining demand. We expect this end market to be weak until some of these factors improve. The new commercial construction end market, which represents 14% of our sales, has remained resilient in 2025 so far, and we believe it will be flat for the remainder of the year, though our customers have smaller backlogs. Bidding activity from our project services teams continues to be slightly positive, but with the ABI index remaining below 50, there is uncertainty in new commercial construction future demand. The repair and upgrade end market, which represents 30% of our sales, has been soft again this year, and with weak consumer confidence, low existing home sales, and economic uncertainty, we believe that repair and upgrade will continue to be down in 2025.

Lastly, in the maintenance end market, which represents 35% of our sales, we achieved good sales volume growth in the first half as our teams gained market share. We expect the maintenance end market to continue growing steadily in 2025. Taken all together, we expect our end markets to be slightly down for the full year. Despite this backdrop, we expect sales volume to be slightly positive in the second half of 2025 with the benefit of our commercial initiatives. When coupled with modest price inflation, we expect low single-digit organic daily sales growth during the remainder of the year. Our sales growth in July so far supports this trend. We expect gross margin during the remainder of the year to be slightly improved compared to the same period in 2024, driven by our initiatives, improved price realization, and the contributions from acquisitions.

With strong actions taken in 2024 to reduce SG&A and continued focus on branch improvement, sales productivity, and delivery efficiency, we expect to continue achieving excellent operating leverage during the remainder of the year. We expect solid Adjusted EBITDA margin expansion for the full year 2025. In terms of acquisitions, as mentioned earlier, we expect to add more excellent companies to the SiteOne family during the remainder of the year, though we expect to add less revenue for the full year 2025 compared to 2024 due to the smaller average acquisition size. With all these factors in mind, we continue to expect our full-year Adjusted EBITDA for fiscal 2025 to be in the range of $400 million-$430 million. This range does not factor in any contribution from unannounced acquisitions.

In closing, I would like to sincerely thank all our SiteOne associates who continue to amaze me with their passion, commitment, teamwork, and selfless service. We have a tremendous team, and it is an honor to be joined with them as we deliver increasing value for all our stakeholders. I would also like to thank our suppliers for supporting us so strongly and our customers for allowing us to be their partner. Operator, please open the line for questions.

Operator (participant)

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, we ask you to limit to one question and one follow-up. First question comes from David Manthey with Baird. Please go ahead.

David Manthey (Senior Research Analyst)

Yeah, thank you. Good morning. Doug, I think you just said you expect to see continued SG&A leverage in the back half of the year, and that's great to hear. Could you give us an update? Is the bulk of the Pioneer integration materially done today? More broadly, are there other key efforts, consolidations, et cetera, that you're affecting in the back half that will continue to drive that leverage? Because I mean, with acquisitions scarce and activity levels light, it's great to see you focused on the SG&A. Could you just give us a little color on what are the drivers there?

Doug Black (Chairman and CEO)

Yeah. First part of your question, Pioneer is fully integrated. It's being kind of institutionalized, if you will, into SiteOne. We're starting to gain the synergies of combining those branches, putting in new product lines into some of their branches, et cetera. We've certainly taken a lot of SG&A out of Pioneer, and we're seeing the rewards for that. Pioneer is on their way. They're part of our overall focus branch effort. When we talk about focus branches, Pioneer is a part of that. As we mentioned, we're making good progress on the focus branches, which are about, at this point in time, about between 140 and 150 branches across SiteOne that are underperforming. We mentioned that we're up over 200 basis points in those branches. Some of that's SG&A gearing. We're very happy with the progress we're making.

That's something that will carry strongly into not only the second half, but also into the next couple of years as we bring those branches, including Pioneer, up to the SiteOne average. In addition to that, we mentioned the other things that we're working on, our delivery, our net delivery expense, and being more efficient in delivery. Great progress there. That's going to continue on. Our sales force ticketed productivity, where we're recovering more sales, is going to, with essentially the same amount of sellers, continue on. siteone.com has been a good impactor on organic growth, which gives us SG&A gearing. That's going to continue on. We feel very confident we can sustain our gains, again, not only just through the second half of 2025, but really for the next couple of years.

David Manthey (Senior Research Analyst)

That's great to hear. Second, on the share repurchase as a use of cash here, while things are slow and acquisitions are skewing smaller and fewer, I think $117 average price this quarter, the second quarter, is going to age pretty well. Could you update us on what's left on the authorization? Given you have a half a billion of borrowing capacity, could we continue to see a more aggressive share repurchase through the remainder of 2025 as a use of cash?

Doug Black (Chairman and CEO)

Yeah, there's roughly $250 million in available capacity under existing authorization. Certainly, as you highlighted there, as we've talked about, if we're not deploying the cash, and we've alluded to with acquisitions, share repurchase is certainly one of the ways we will provide value back to the shareholders.

David Manthey (Senior Research Analyst)

Thanks very much, guys.

Operator (participant)

Next question, Ryan Merkel with William Blair. Please go ahead.

Ryan Merkel (Co-Group Head of Industrials)

Hey, thanks. Good morning. My first question, Doug, is on the outlook. At this point in the year, would you point us to the midpoint of the Adjusted EBITDA outlook? What are the risks for the second half that you see? I know it's murky out there, but if there were some specifics that you could point to, that would be helpful.

Doug Black (Chairman and CEO)

Yes. I mean, our guidance is a range, and we feel pretty good about being solidly in that range. If that gives an attempt at your first part of your question. The risk, obviously, is the markets are soft. We're outperforming the market. We think we can continue to outperform the market. We have confidence in that. The risk is really, the main risk is with the market. Is it going to deteriorate further? Is there going to be something that drives worse market demand than we think is coming? We think we have a pretty good barometer on where the market is now. We've got a good, healthy balance. The maintenance market is going to be steady. Feel good about that. New construction, residential, and repair and remodel are down, and we think they'll continue to be down. Commercial has stayed pretty resilient, as we mentioned.

I think we have a pretty good read on it, but if the market is worse than we think, then obviously that'll put pressure on organic growth. That's the primary risk. We feel really good about our initiatives, the SG&A actions, et cetera. It really comes down to organic growth. We're encouraged by what we see in July, but July is one month out of the six. That's the major risk, the market.

Ryan Merkel (Co-Group Head of Industrials)

Fair enough. My second question, I was also happy to see the leverage in the quarter, and you guys are clearly focused on SG&A. As we think about that long-term target, Doug, that EBITDA target of margin target of 13% to 15%, can you help us with where you see gross margins landing in that area? What about SG&A as a percent of sales?

Doug Black (Chairman and CEO)

Yeah, I guess I would communicate it as they're both going to contribute to the, you know, it's a path to get there. Probably more SG&A leverage than gross margin improvement. You know, you'll see a balanced, you know, you see what we're kind of being able to achieve now in terms of improvement. Those initiatives are going to continue with small customer, private label, et cetera. We feel good about that. SG&A leverage, we would expect to contribute more as we catch up with the focus branches and as we execute our initiatives around, you know, associate productivity, delivery, et cetera. It will be a combined formula, probably more SG&A leverage than gross margin, but they'll both contribute to the path there. Again, you know, we see ourselves making, we're going to make some good progress this year.

We feel that's going to continue over the next couple of years. We get into the double digits. You know, that's not the cap of where we can go. We feel strongly that we'll continue to expand margins for the next five to seven years, you know, as we really codify all the best practices that we're working on and continue to add more synergies to acquisitions when we do acquisitions.

Ryan Merkel (Co-Group Head of Industrials)

Great, thanks. I'll pass it on.

Operator (participant)

Next question, Damian Karas with UBS. Please proceed.

Damian Karas (Executive Director)

Hey, good morning, everyone.

Doug Black (Chairman and CEO)

Morning.

Damian Karas (Executive Director)

Good morning. I think sales were a lot better than some investors had feared, just given the tough market backdrop. Doug, you've talked a few times about market share gains and outperforming the broader market. If you had to pinpoint the commercial initiatives that are really driving that outperformance, what would you point to? How much visibility do you think you have in that continuing into the back half of the year here?

Doug Black (Chairman and CEO)

Yeah. In terms of market share visibility, of course, the data is scarce in this industry, but we do get great feedback from our vendors, and that's kind of our primary, and our customers, et cetera. We do feel like we're picking up market share. I'd say the initiatives that are driving that are a couple. One, I'd point to digital. We are ramping up significantly in digital. Digital puts us at the front of the industry. We have siteone.com and our ability to engage with our customers, we're a market leader there. It creates growth, market share opportunities, stickiness of customers, and growth. I feel really good about it, and digital is continuing to ramp up strongly, and we think it will for several years to come.

Our initiatives with our sales force and our customer excellence, we're getting better and better at serving customers consistently with our sales force getting out there and driving new market share growth. We feel good about that. Our private label initiatives allow us to be out there, super competitive with good margins, gaining market share. We're gaining market share in adjacent product lines where we have very small share today. I would point out synthetic turf, erosion control, pest control on the agronomic side, equipment on the agronomic side. We still have product categories where our share is single-digit in the market that we can penetrate, and we're taking advantage of those. Those would be the big ones. I don't know, John, if you have anything to add to those. Those would be the big drivers of share gain.

Damian Karas (Executive Director)

That's really helpful. I just wanted to take a step back thinking about the industry structure. Immigration numbers into the U.S. are down quite a bit, you know, the first half year under the new federal administration. I'm curious what you've been hearing from your customers in terms of any impacts they might be seeing. How are you thinking about, you know, further intensification, if you will, of labor scarcity and how SiteOne's prepared for it?

Doug Black (Chairman and CEO)

Yeah. We stay close to our customers on that issue. I'd say our customers have labor to get their work done, I think, is the punchline. Look, we've heard of various impacts of some of the deportation affecting customers here and there. Our customers are pretty agile, and they can find workers in multiple ways. We obviously work with the trade associations to attract folks to this industry. I think in the end, they're making through and finding the people that they need to get the work done. Just remember that this industry has been labor-constrained for several years, and obviously, that hit its peak during the COVID bump, if you will. With the market coming down and some of the softness of the market, it's taken some pressure off of labor scarcity. Some of these other issues have added to labor scarcity.

All in all, our customers have what they need to go out and do the work. We don't think that's a big limit on the market today. We think the limit on the market today is the market demand.

Damian Karas (Executive Director)

Understood. Appreciate your thoughts. Best of luck.

Doug Black (Chairman and CEO)

Thank you.

Operator (participant)

Next question, Stephen Volkmann with Jefferies. Please go ahead.

Stephen Volkmann (Equity Analyst)

Great. Good morning, guys. Doug, I wanted to go back to the focus branch initiative. I think you said 200 basis points. I assume that's kind of a year-over-year improvement. Is that the right pace to think about the next couple of years? Remind us the gap between those and kind of the rest of the company.

Doug Black (Chairman and CEO)

I'll let John handle this.

John Guthrie (EVP and CFO)

Yeah. We defined any branches or businesses underneath 6% EBITDA as what is on our focus branch improvement. Probably, if you will, the group was in low single digits. We think that is a reasonable assumption for kind of the growth going forward. Obviously, it comes in fits and starts, but each year, some of the initiatives can be done in one year, quick turnaround. Some of them will take a few years. I think we're in a good position to continue this for several years into the future.

Stephen Volkmann (Equity Analyst)

Okay. Great. That's helpful. Maybe just on the acquisition front, I can't remember if you've explained this, so I apologize, but why is it that the bigger deals are sort of on the back burner? Is there something about this environment that makes those folks want to hold off? What's that dynamic that's driving that?

Scott Salmon (EVP of Strategy and Development)

Yeah. I think this is Scott. The main dynamic is just that really sellers decide when they're going to sell. I guess there could be a dynamic that with the market softer, those bigger players see that they've fallen perhaps more so over the last couple of years. There's nothing in our, we still have a very strong pipeline of companies of all sizes. We feel really good about our position in the industry as the acquirer of choice. We just hit our 100th acquisition in March. We're pleased with our M&A team and the relationships that we continue to build with companies of all sizes. We would expect to continue to add companies of varying sizes for the rest of the year and for multiple years to come.

Stephen Volkmann (Equity Analyst)

Okay. I guess that's kind of what I was trying to get at, Scott. Is it like, do we need to wait for the industry to improve a little before those things sort of re-accelerate, or is this just maybe more a random period of weakness? I don't want to say weakness, but lull.

Scott Salmon (EVP of Strategy and Development)

I would describe it as a small sample size rather than a trend long term with regards to the size of the deals.

Doug Black (Chairman and CEO)

Yeah, I would back that up. It's really just timing. Deals fall like Scott. Sellers sell when they're ready to sell, not when we're ready to buy. You get some randomness as things fall into place and people come due. I think you're just seeing that trend. We could have a large one or a run of kind of medium-sized ones come at us just as easily as this one. We know the ones that we're in more advanced discussions with, and we can see that this year is going to be a lighter year than normal. It's likely to be balanced by a heavy year in the future. We don't know if that's next year or 2027 or whatever, but we know the average size of deal in our kind of target group is the same as it has been for the last 10 years.

Stephen Volkmann (Equity Analyst)

Great. Thank you so much. I'll pass it on.

Operator (participant)

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

Matthew Bouley (Senior Equity Research Analyst)

Morning, everyone. Thank you for taking the questions. I wanted to ask on the new residential construction end market. You talked about, I guess, sort of softer trends, or I think you said down in 2H. I just wanted to get a sense of if you could quantify sort of what you're tracking in new residential. Obviously, the end market's been kind of incrementally softening. SiteOne, of course, historically has a bit of a lag to start. It would be helpful to kind of understand where you are in that cycle. Just any more detail on how that's tracking for you. Thank you.

Doug Black (Chairman and CEO)

I would say it's, first of all, it's down more in those high-growth markets, right? We mentioned Florida, Texas, Arizona, California, some of those where the markets were hot, those would be down. If it's taken in total, we think single digits, low single digits is probably where it's at. It's kind of hard to gauge, but we think it would be kind of down, low single digit would be our best guess at what we're facing market-wise when you take it in total across the U.S. and Canada.

Matthew Bouley (Senior Equity Research Analyst)

Okay. Got it. Understood. That's helpful. On price and inflation, I guess you're talking about grass seed and PVC kind of tracking where they are. I think you said grass seed could be down 10% to 20% for the year. I don't know if that's maybe tracking to sort of like a 50 to 100 basis point headwind for the entire company. When you start thinking about getting back to positive price in Q4, I just wanted to make sure we're getting this right, that kind of the rest of the portfolio and some of these products that are driven by tariffs here, I mean, are you looking at kind of mid-single-digit inflation or maybe low to mid-single-digit inflation on the rest of the portfolio? For those specific tariff-exposed products, would it be higher than that? Any kind of color on the rest of the product portfolio's inflation. Thank you.

Doug Black (Chairman and CEO)

Yeah. In general, we saw some price increases at the beginning of the year. Specifically with the tariff-related products, we saw, really kind of May, June, some price increases with regards to those. Think lighting, irrigation probably were the areas where we saw the most of those increases. The increases in those, I would say, are mid to high single digit would be probably the average, probably more towards mid-single-digit price increases. Our suppliers have been very thoughtful about their higher costs that they're paying and what they're passing on and what the market can withstand. At the same time, they are seeing higher costs because of the tariffs. That's the general what we're saying. I would say the numbers are less than headline numbers that we were seeing for a while there, when you just saw, and it's primarily China, Southeast Asia, and Mexico are where the exposure is.

Yeah. One other factor to keep in mind is that seed, which right now, you know, PVC pipe is starting to lap itself, some of the decreases. The effect of PVC pipe has been going down as we've gone through the year. Seed took another leg down, and that's why it's going to be down further. Seed really goes, the biggest seed month is September. It's a third-quarter product. It does spill some into the fourth quarter. That's why we're saying pricing is going to be flat. It'll net out flat in the third quarter. By the fourth quarter, seed season is kind of passed. We don't sell a lot of seed. Now you've got the other products kind of kicking in. That's why you get up 1% to 2% in the fourth.

Going into next year, obviously, seed will start to lap itself as we get to this time next year.

Yeah, 70% of the seed, roughly a little over 70%, is sold in the second half of the year, and you know, roughly a third of it is sold in the month of September.

Matthew Bouley (Senior Equity Research Analyst)

Got it. Perfect. Really helpful color. Thanks, guys, and good luck.

Operator (participant)

Next question, Collin Vervon with Deutsche Bank. Please go ahead.

Collin Vervon (Director)

Morning. Thank you for taking my question and great execution in a soft end market environment here. I guess I just wanted to touch on the new commercial market. You expect it to be flat for the year. Any commentary on how it's trended in the first half of the year? You referenced the weakness in the ABI. Any thoughts on if and when you would expect that to start appearing in your backlog and maybe your thoughts on why that hasn't shown up yet?

Doug Black (Chairman and CEO)

Yeah. This is consistent with what we've seen in the first half, flattish. Commercial tends to follow residential, and obviously, residential is dropping. Logically, you would expect commercial to be down at some point in the future. We keep a close eye on it. Our project services group does bidding for our customers in the commercial market. They're bidding on all the commercial jobs that we're exposed to, which is broad across the industry. They're still kind of slightly up, and very slightly up in what they're bidding. When we talk to our customers, our customers have work through the rest of the year, but they do have smaller backlogs, right? You can tell in some of the high-growth markets, some of the commercial markets are down in some of those high-growth markets. It bounces across the country.

We see clouds on the horizon with commercial, but we feel like it'll be flat through the rest of the year. We'll see how it goes into next year. It's highly, I think, dependent on what happens in the new residential. That's what we're seeing today.

Collin Vervon (Director)

Great, helpful color. I guess just on the declines in the new residential construction market, any thoughts on how that might impact sort of the maintenance growth that you can see out in 2026?

Doug Black (Chairman and CEO)

Yeah. No, maintenance tends to be very steady, you know, despite, I mean, if you can imagine, maintenance is on the installed base. What happens in the new build doesn't have a big effect on the maintenance market, both commercial and residential. Maintenance is going to chug along very steady, tends to follow GDP. That's a place where we have a lot of strength and a market where we're actually gaining, if you know, if I had to say where we're gaining our most market share, it's probably in the maintenance category, not only in kind of core products, but also in some of those adjacent products like pest control equipment that I mentioned. Maintenance is a good steady market, 35% of our sales, and we luckily are very strong there, and we feel like we're gaining share in that part of the market.

Collin Vervon (Director)

Great, I appreciate all the color.

Operator (participant)

Next question, Keith Hughes with Truist Securities. Please proceed.

Keith Hughes (Managing Director of Sell Side Equity Research)

Thank you. You had referred earlier in the call to, I think, about 200 basis points margin gain of the focus branches, the 140-odd focus branches. If you had to characterize a couple of buckets of what they're doing better, can you give us kind of a view on that?

Doug Black (Chairman and CEO)

First, there is some changeover of the teams in those branches, right? Invariably, the teams need to be strengthened. Also, just the customer excellence of those branches. Some of those branches have fallen off on how, quite frankly, how well they serve customers. That is part of the healing process, I guess, to get them back up to world-class on serving their customers. That invariably turns into sales growth. Organic growth is part of it. Finally, just SG&A reduction. Those are some of the areas where we got fat or got out of line with the market demand. Certainly with Pioneer, there was a very large SG&A takeout to get them to the right level to serve the current market. John, anything to add to that? I think.

John Guthrie (EVP and CFO)

I think it's really up and down the income statement where we're working and at a different spot.

Yeah.

Keith Hughes (Managing Director of Sell Side Equity Research)

Okay, thank you very much.

Operator (participant)

Next question, Andrew Carter with Baird, please go ahead.

Andrew Carter (Analyst)

Hey, thanks. Good morning. I'm not sure if I caught it correctly, but in terms of gross margin for the year, did I hear that it's now expected to be slightly up? I know it was previously flat. I'll start there.

John Guthrie (EVP and CFO)

I think Doug's comment was on the remainder of the year from that standpoint. We would expect it to be up slightly from that standpoint. In general, what you saw this quarter was pricing was a little bit stronger. We saw some benefit from acquisitions, and some of the initiatives like private label specifically are contributing to the overall growth from that standpoint.

Andrew Carter (Analyst)

Gotcha. Does your guidance include any kind of inventory benefits from pricing? In 2Q, you've borne the cost of deflation in gross margin, but now you're starting to turn to pricing. Was it a net headwind or tailwind in 2Q? For the full year, does your guidance help by it moving to a net benefit this year? Thanks.

John Guthrie (EVP and CFO)

I think in general, pricing is not the headwind that it was last year. I guess year-over-year, you would say that that's a positive from that standpoint.

Andrew Carter (Analyst)

Thanks, pass it on.

Operator (participant)

Next question, Charles Perron-Pich with Goldman Sachs. Please go ahead.

Charles Perron-Piché (VP and Equity Research)

Thank you for taking my question. First, if I heard you correctly, I think your exposure to tariff is 10% to 15% of sales, but can you update your expectations on cost of sales across categories through the second half? If you consider mitigation action different than pricing to offset those, at the same time, are you seeing competitors taking a different approach to pricing in this environment?

Doug Black (Chairman and CEO)

Could you repeat your first question?

Charles Perron-Piché (VP and Equity Research)

Yes. Do you see any mitigation action different than pricing to offset some of the inflationary impact from tariffs?

Doug Black (Chairman and CEO)

Not really. We're obviously working on our gross margins. You're still having a net pricing impact across the board of less than 1% in the second half. I think our manufacturers thoughtfully think about that. In general, the whole market will pass through higher costs from the manufacturers and suppliers.

Okay. That's helpful. The second part of your question, are competitors taking a different tactic? No, I mean, our market is pretty rational about passing through manufacturer price increases, and that's continued. I would say it's a competitive market. In a competitive market, everybody fights for market share, and that's been the case for the last 18 months. That hasn't changed. We haven't seen any fundamental changes. We're in a competitive market. We have to have a competitive price. With our size and scope, we can work with our manufacturing partners to make sure that everybody wins in the market.

Charles Perron-Piché (VP and Equity Research)

No, that's very helpful color. It sounds like freight is becoming more an opportunity for savings over the coming quarters. Can you maybe expand on this opportunity and how big a contributor it could be over time?

Doug Black (Chairman and CEO)

I think our, you know, we've worked hard over time on our kind of freight into our branches, and we're pretty dialed in there. We continue to make, you know, some gains there. Where we're really making the gains today is the delivery to the customer from the branch. We mentioned that we have a large initiative on the efficiency. We put in a system, DispatchTrack, across our company several years ago, which allows us to track our trucks and improve the accuracy of our deliveries to get hit time windows for our customers, et cetera. Now we're harvesting the benefits of more centralized delivery and getting the efficiency out of our delivery fleet. We expect to drive performance improvement there. We mentioned the 40 basis points on delivered sales that we were able to gain in the first half from our customer delivery.

We expect to continue to gain benefit there as we go forward over the next two or three years and dial in our market delivery to the end customer.

Charles Perron-Piché (VP and Equity Research)

Okay, that's helpful color, Doug. Thanks for the time.

Operator (participant)

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

Doug Black (Chairman and CEO)

Thank you, everybody, for joining us today. We very much appreciate your interest in SiteOne. I want to thank our associates for all the great work they do to help us be a great company, and also thank our suppliers and our customers. We're very pleased with where we are and where we're going. We look forward to speaking to you next quarter after the third quarter.

John Guthrie (EVP and CFO)

Thank you.

Operator (participant)

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