SiteOne Landscape Supply Inc (SITE) 2016 Q2 法說會逐字稿

Greetings, and welcome to the SiteOne Landscape Supply second-quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pascal Convers, Executive Vice President of Strategy and Development. Thank you, sir. You may begin.

Thank you. Good morning, everyone. We issued our earnings press release this morning, and posted a slide presentation to the Investor Relations portion of our website at investors.SiteOne.com. We will be referencing the slides during this call. I am joined today by Doug Black, our Chief Executive Officer, and John Guthrie, our Chief Financial Officer.

Before we begin, I would like to remind everyone that during this call, SiteOne Management may make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, anticipation, beliefs, estimates, forecasts, plans and prospects.

Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in the Company's earnings release posted on the website, and provided in our final prospectus, as filed with the Securities and Exchange Commission. The Company does not undertake any duty to update such forward-looking statements.

Additionally, during today's call, the Company will discuss non-GAAP measures, which we believe can be useful in evaluating performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of adjusted EBITDA to net income calculated under GAAP can be found in our earnings release, which is posted on our website, in the Form 10-Q, which we filed with the SEC today.

I would now like to turn the call over to our CEO, Doug Black.

Good morning, and thank you for taking the time to join us today. I would like to start today's call by briefly reviewing our strategy, followed by the highlights of our second-quarter results. I will then pass the call on to John Guthrie, who will walk you through our financial results in more detail. Pascal Convers will cover the update on our acquisition activities, and finally I will come back to provide comments on our outlook, before opening up the line for your questions.

I will start with slide 4 of the earnings presentation. We continue to make progress executing our strategy, which we believe provides distinct opportunities to grow our business, and create significant value for all stakeholders, both in the near term and over the longer term.

As we explained during our last earnings call, our strategy combines the scale advantages and capabilities of a large company, with the passion, deep knowledge and entrepreneurialism of our local teams in order to deliver superior value to both our customers and our suppliers. This allows us to gain market share and achieve consistent superior organic growth and profitability.

At the half-point in the year, we have achieved 7% organic net sales growth, which is a reflection of our strategy. We complement our organic growth with acquisitive growth to achieve strong results for our stakeholders, while extending our lead over the competition. And this was once again highlighted by our recent acquisition of Bissett earlier this month.

In addition to organic and acquisition growth, we also had the opportunity to expand our EBITDA margin, as we execute our commercial and operational excellence initiatives. We are still in the early innings of these initiatives covering pricing, category management, supply chain, sales force performance, and marketing. In the second quarter, SiteOne once again realized the benefits of these initiatives, expanding our gross margin by 220 basis points.

Turning to slide 5, we are pleased with our financial and operational performance in the second quarter, as we delivered solid results for the three months ended July 3, 2016, despite the pull-forward of organic sales into the first quarter. I'm particularly proud of our ability to execute during a period when we completed both our IPO, and a debt recapitalization.

A lot of time and hard work by our team resulted in well-executed transactions. With the IPO behind us, and a strong capital structure in place, we are laser-focused on executing our strategy, growing SiteOne, and delivering strong results for all stakeholders.

Net sales increased by 7% year over year in the quarter, reflecting good contribution from our acquisitions. Organic revenue declined by 2% in the quarter, but was balanced with 23% organic growth in Q1, resulting in a 7% overall increase for the first six months of 2016.

Our organic growth for the second quarter was negatively impacted by the pull-forward of sales into the first quarter, due to the early spring, and resulting very strong demand. In addition, as we mentioned on last quarter's call, weather conditions in April and May were unusually wet, and therefore unfavorable, followed by some improvement in June.

As you've heard us say before, our business can be impacted by weather both positively and negatively in a short term, but this tends to normalize over the course of the full year. And that's exactly what we experienced, if you look at our combined organic growth results for the first half of the year.

Now let me address the previous forecast of 8% to 9% organic sales growth for the half year, versus the 7% that we achieved. There were two reasons for this.

First, we had an issue with our forecasting process. We provide seed to blenders, who then bag the seed and ship it back to us, to be sold to our end customers. During our build up to the forecast, we incorrectly included some of that seed volume to blenders in our estimates for the second-quarter sales.

Note that this issue has no effect on our forecast for EBITDA. We identified the issue, and have since fixed our forecasting process to exclude this volume, going forward.

Second, we did expect June to be a stronger month for our agronomic and nursery products. However, the hot and dry weather came early in June, and dampened the quarter-end sales for these product lines. Aside from these two issues, we feel good about delivering 7% organic sales growth, and 19% total sales growth for the first six months, which reflects our growing market and our continued ability to gain market share both organically and through acquisition.

Gross margin expanded by 220 basis points to 32.8% in the second quarter, as we continued to benefit from our operational improvements, primarily in pricing and category management. We are still in the early innings, and will continue to see benefits of our commercial and operational initiatives for the next several years. Adjusted EBITDA increased by 12% to $74.9 million, and margin increased by 80 basis points to 14.6%. For the first six months of the year, we generated adjusted EBITDA growth of 30%.

Lastly, we continued to execute our acquisition strategy, with the addition of Blue Max Materials in the Carolinas in April, and Bissett in Long Island, New York, earlier this month. Which provide us with leading positions in their respective markets.

With that, I will now turn the call over to John to walk through the financials in more detail.

Thanks, Doug. Now turning to slide 6, and our second-quarter 2016 results.

We reported solid results for the quarter, with net sales of $513 million, up 7% compared to $482 million in the second quarter of the prior year. We experienced a decline in organic sales of 2% for the quarter, but an increase of 7% for the first six months of 2016.

Organic sales for the second quarter were negatively impacted by the pull-forward of sales into the first quarter, due to the early spring. As Doug mentioned, we reported 23% organic growth in the first quarter. Acquisitions in the second quarter contributed $42 million or an additional 9% to our growth rate.

Looking at our organic growth in a little bit more detail, we saw the sale of irrigation, lighting, nursery, landscape accessories and hardscapes grew 2% in the second quarter, and 10% for the first six months of the year. These products continue to benefit from the economic recovery in residential and commercial construction, and a strong repair and remodel market. Sales were however impacted by the Q1 pull-forward and the wet weather in April and May. We saw a good recovery in organic sales, however, in June.

Our agronomic products, which includes fertilizers, control products and other lawn care products experienced a decrease of approximately 11% during the second quarter, following the 21% growth in the first quarter. These products, which account for approximately one-third of our annual sales, were more heavily impacted the pull-forward, as contractors applied pre-emergent fertilizers and control products earlier in the season, in response to the warmer temperatures.

For the first six months of the year, organic growth of our agronomic products was 1%. Gross profit increased 14% to $168.5 million, compared to $147.5 million during the same period last year.

Gross margin was 32.8% for the second quarter of 2016, compared to 30.6% for the same period in 2015, a 220 basis point expansion. We benefited from ongoing operational improvements in pricing and category management. Product mix had a slight negative impact on margin of approximately 20 basis points.

Last quarter, we talked about these initiatives being in their early innings, and we're seeing that progress continue in the second quarter. We feel confident in our ability to execute our strategy, and expand gross margins further in the years ahead.

Selling, general, and administrative expenses increased to $118 million from $91.3 million in the same period last year. While SG&A as a percentage of net sales increased to 23%, compared to 19% for the same period a year ago, the increase was primarily attributable to the acquisition, expenses related to our IPO and dividend recapitalization, and higher labor expenses for the growth initiative.

The impact from the expenses related to the IPO and debt recapitalization was $11.2 million, which increased our SG&A as a percent of sales by 220 basis points. Net income in the second quarter was $26.9 million on a reported basis, compared to $33.2 million during the same period last year. The decline in net income for the second quarter was attributable to the IPO and debt recapitalization costs of $7.4 million on an after-tax basis, and higher interest expense of $2.3 million after tax.

Net loss attributable to common shares was $88.6 million for the second quarter, which resulted in a corresponding loss of $3.18 per share. The loss is a result of the $115.5 million preferred stock dividend recognized prior to the IPO.

The weighted average for the common shares outstanding used in the earnings per share calculation was 27.9 million. The total common shares outstanding at the end of the second quarter was 39.5 million. The lower weighted average share number in the EPS calculation reflects a lower share count as a result of the conversion of the preferred stock to the common stock on May 16, and these common shares are included in the weighted average common shares outstanding from that day forward.

Adjusted EBITDA increased 12% to $74.9 million, compared to $66.6 million for the prior-year period. The improvement in adjusted EBITDA reflects our strong gross margin performance, and a good contribution from acquisitions. As a reminder, we define adjusted EBITDA as excluding pre-acquisition acquired EBITDA.

Now, I'd like to provide you a brief update on our balance sheet and cash flow statement, as shown on slide 7. Net working capital increased to $342 million for the six months ended July 3, 2016, versus $297 million as of January 3, 2016. This increase in net working capital reflects both our seasonal build, and the impact of our acquisitions. Net debt at the end of the quarter was $397 million, which yields a leverage ratio of 3.2 times our LTM adjusted EBITDA.

Cash flow from operations was $2.2 million for the quarter, and $12.2 million for the first six months, compared to $27.8 million and $12.6 million for the same period in 2015. The change in operating cash flow for the second quarter reflects the timing differences in our working capital, resulting from the early spring. We made investments of $13 million for the quarter, including $10.5 million for acquisitions, and $2.5 million for capital expenditures. This compares to $10.7 million in the second quarter of 2015, of which $8.8 million was for acquisitions, and $1.9 million was for capital expenditures.

Our capital structure and our ability to generate cash provide us the flexibility to execute our growth strategy, including the funding of our acquisitions. Our balance sheet remains strong, as we made progress this quarter lowering our leverage ratio to 3.2 times adjusted EBITDA from 3.5 times pro forma for the first quarter. Ultimately, working towards our longer term leverage ratio target of 2 to 3 times.

I will now turn the call over to Pascal for an update on SiteOne's acquisition strategy.

Thank you, John. As many of you know, acquisitions played a key role within our overall growth strategy. As shown on slide 8, we have now acquired 11 companies over the past two years, and we continue to see a significant opportunity to create superior value for SiteOne through acquisitions, which allow us to move into new markets, expand our presence in existing ones, broaden our product offering, and also, very importantly, add market-leading talent to our team.

As explained on our last earnings call, we acquired Blue Max Materials in April. Blue Max added five locations to our existing footprint of 26 stores in the Carolinas, and makes us number one in hardscapes there. The Blue Max team will also be instrumental in helping execute superior hardscape best practices across SiteOne.

As we turn to slide 9, earlier this month, we were very pleased to add another strong company to SiteOne. On August 1, we acquired Bissett Nursery and Bissett Equipment Company, which complements very well our existing business in the agronomics, irrigation, and outdoor lighting product lines. We believe makes us the largest and only supplier of a full landscaping product line to green industry professionals in the Long Island, New York and New York City markets.

These are large and attractive markets, and we are now the number one professional landscape distributor in those markets. The acquisition of Bissett also brings good purchasing and fixed cost synergies.

Our pipeline remains robust, and is expanding, as we continue to build our reputation as the buyer of choice in the industry. Year to date, we have completed three acquisitions, which contribute $140 million in annualized sales to SiteOne. While the timing of acquisitions cannot be fully predicted, we anticipate closing more acquisitions in the remainder of the year, that will contribute nicely to our 2017 growth.

And with that, I would like to turn the call back over to Doug to discuss our outlook.

Thanks, Pascal. Overall, we are very pleased with our results for the first half of 2016. We executed an IPO, reset our capital structure, added three very strategic acquisitions, strengthened our team with key functional and field new hires, and demonstrated how our business can balance out significant swings in weather, and still deliver market-leading organic sales growth, excellent margin expansion, and good overall growth in sales and profits.

In terms of the outlook, shown here on slide 10, the underlying trends in the market remain positive. Organic sales growth has recovered nicely for our construction and repair and remodel-oriented products. These include irrigation, lighting, nursery, landscape accessories, and hardscapes.

The hot and dry weather is good for irrigation products, and also facilitates more construction days. That said, our agronomic products have seen a continued lull in the market, driving lower overall organic sales growth so far in the third quarter. Note that the summer months of June, July and August are typically slower months for agronomic products, along with the nursery product line, and the month-to-month organic growth rates during these months for these products tend to be less meaningful in predicting the full year. Demand for these products will typically pick up in early September through October, during the fall application and planting season.

Overall, we feel good about the positive drivers in demand, which support continued organic growth in the second half of 2016. We will have more visibility in September and early October as to how the year will finish up for our agronomic products, which are typically very consistent year to year with low single-digit organic growth.

In addition to organic growth, we anticipate continued benefits from our commercial and operational initiatives, which will drive our gross margin and EBITDA margin improvements. We feel good about our momentum with these initiatives, which as we've stated before, are still in the early stages of development. Lastly, the acquisitions that we've completed to date are performing well, and we expect them to contribute strongly to our second-half sales and profit growth.

As Pascal mentioned, we have a robust pipeline of strategic acquisition targets, and believe that we will close more acquisitions in the remainder of the year, which will set us up nicely for further growth in 2017, and add terrific talent and new capabilities to our Company. For the full FY16, we reiterate our guidance and expect adjusted EBITDA to be in the range of $132 million to $140 million, representing year-over-year growth of 24% to 31%.

As we turn to slide 11, I remain very excited about the opportunities ahead for SiteOne as a public company. We have a very attractive industry, that is well-balanced and growing, and which lends itself to wholesale distribution. We are the clear leader in the industry, and the only national industry consolidator with significant competitive advantage.

We have a compelling strategy to grow organically, expand our margins, and grow through acquisition. And finally, we have a tremendous team in place to execute our plan. In summary, we are well-positioned to deliver significant value to all stakeholders in both the short and the longer term.

In closing, I would like to acknowledge all of the SiteOne associates who have worked tirelessly, serving our customers, and who have made us successful to this point.

Operator, please open the line for questions.

(Operator Instructions)

David Manthey, Robert W. Baird.

Thanks for clarifying on the forecast, and outlining, it sounds like the end of June and into July and August, we are in line with your expectations. So, qualitatively at least, so that's fine.

Could you give us an update on the, mainly the pricing and category management margin enhancement efforts? Given the upside we saw in gross margin this quarter, should we assume that you are further along than you had initially planned, or are you seeing more opportunity in those areas?

Great question, David. I think we're where we would thought we would be. Obviously, we came in a bit stronger in the second quarter with those particular initiatives.

But going into the second half, we feel good about those continuing. If you remember, we're in the mid stages of both pricing and category. We're in the early stages obviously in supply chain, which we would look to start really kicking in 2017, and then sales force and marketing are also in the earlier stages. But in terms of pricing and category, we're happy with our progress.

We've got strong momentum. We've got terrific teams in place that are working both sides of that equation. And one thing to remember is that obviously we saw big improvements in 2015, so as we lap those improvements, the pace of improvement in our gross margins will moderate, but we still see positive improvement in the second half.

Okay, that's encouraging. And second, as it relates to acquisitions, are you seeing any increase in competition there? Does pricing remain in a constant band, as you have seen historically? And is it just, where you do see competition, is it just strategic players? Are there any PE buyers out there? Could you help us with that?

Good morning Dave. The multiples remain the same. We don't see much changes. Most of the acquisitions we are doing are exclusive discussions. Here and there, we will see, you saw that pool arising, but they will do that every two to three years. PE, not much activity from the PE. So I would say so far, pretty much the same story. Reasonable multiples.

That's great. All right, thanks.

Bob Wetenhall, RBC.

Congrats on making that nice EBITDA number. I was hoping you could step me through the drivers, like the relative contribution on the 220 basis points of gross margin improvement? And I also wanted to understand how we should think about gross margin. As you shift from hot weather to cold weather, how does gross margin track, as you have a product mix shift going through the back part of the year?

Good question, Bob. Good morning. In terms of the mix, we don't disclose specific metrics around each component. As we stated, the main drivers of margin growth right now are both our pricing and our category. Pricing the value for the various product lines.

Obviously we remain competitive with our customers, but we are pricing to those products that carry more value than others, and categories, working with our suppliers to create win-wins as we push more volumes to our preferred suppliers, then they reward us with better deals. So those two efforts are ongoing, and working well for us.

Can you remind me the second half of your question? Hot and cold. Let me address those the second question was hot and cold products.

Our product lines have a fairly similar band of gross margin, across. So effects of different weather and shift of different mix tends not to dramatically affect our product lines. You saw that the mix effect in Q2 was a slight negative, I think 20 basis points. John, you might have more comment on that, but mix as it ranges from different cold or hot weather events, tends not to shift.

Seasonally, you will see our gross profit margins really peak in the second quarter, and then go down from there. Just looking at prior year, we will see a couple basis points, percentages dropping year quarter to quarter.

I think it's important to remember that the improvements in our initiatives go across all product lines, though. And so while the mix changes the overall number of the improvement year over year, I think our efforts are across all products.

That is very helpful clarification. For my second question, your revenues came in light of your initial forecast, but your profitability came in ahead. So if your second-half results are consistent with your initial forecast, as well as your profitability, is my math correct, that that puts you then at the high end of guidance at that $132 million to $140 million range, just based on the fact that your profitability on a lower sales number in 1H is ahead of your expectation? So if you make 2H in line with the guide, you should be at the high end of the EBITDA range? Thanks and very nice quarter. Good luck.

Thank you Bob. Just to address that, I think it's too early to call. We feel confident about our guidance range. Too early to call whether where we are in that range. Obviously, we craft that towards the midpoint of this stage.

In terms of market outlook, we are seeing good comeback in our construction-related products. As we mentioned, we are in a bit of a lull with our agronomics and nursery products. This is a slow of the time, so hard to call those growth rates. The big season for those products comes in the fall.

So in terms of predicting the market going forward, we feel like the underlying drivers are there. We feel like it's going to be a good market, but it would be too early to call within that range. We should be able to tighten that up or get more insight, obviously, when we do our third-quarter earnings release.

Makes sense. Good luck, gentlemen.

Nishu Sood, Deutsche Bank.

I wanted to dig into the sales trends, and just to understand a little bit better about what you're seeing from 2Q into 3Q. On the more construction or discretionary sense of the portfolio, the irrigation, lighting, nursery accessories, et cetera, hardscapes, I think you said up 2% in the second quarter and 10% for the first six months of the year. That's a business that can get, with positive construction trends, high single-digit sounds like it's pretty possible for that business.

Are we back to that now, because it sounded like your comments, so far in the third quarter, that business has been performing well. So it sounds like maybe the pull forward on that side of the business is past us. Is that the right way to think about it? Based on your comments of the third quarter so far?

Yes, Nishu, that's a good way to think about it. We saw a good recovery in June. And so June would have been on the higher end of that average for Q2, and then in July, we've seen even more recovery back toward normal levels for the construction-related products. So we think the pull forward effects, et cetera, have abated, and we're back to a normal trajectory in those products.

On the agronomic side, that business longer term, the low single digits, more stable generally, but probably more weather sensitive as you were pointing out. What do you think is causing the continued weakness of that, into the third quarter? It was down quite a bit, I think you mentioned, in the second quarter. So has it improved since what we've been seeing in the second quarter, and what do you think accounts for that?

Is it unusually hot? We had some, the rains have settled down a little bit in the third quarter looks like, but is it the heat, or what do you think is driving that? And then, what's the trigger, as you mentioned, I think in the fall season, you mentioned the pre-applications for the winter. So what would be the trigger point to get that back on track?

Right. Great question. So first of all, for our agronomic product, it's important to note that about almost 50% of that product goes in the four months of April, May, and September and October. So those are very seasonal.

As you mentioned, they are weather affected. There's all different types of effects, sometimes, for some things hot and dry weather is good, we have more fungus and we sell more fungicides and control products, but the planting abates, and we have less fertilizers.

So the agronomic products do tend to move around month to month, quarter to quarter. Over a full course of the year, they do tend to average out to a very consistent level, and so, and we're seeing that. We had a huge swing in quarter one to the positive. We had that pull-forward reflected in our Q2. We had certainly improved versus the negative 11 Q2 growth rate, but we are in that summer lull.

And I would say the nursery product line also is quite seasonal. You have your spring plantings, then you have a bit of a lull during the summer, and then you have a big fall season. So those product lines can bounce around during the summer. It's hard to tell if it softness or just lull, or weather.

But as we get into the fall, we do expect, given the nature of construction, and the inherent stable nature of maintenance, that those products will pop back, and wind up with the same growth rates that we expect for the full year. John, do you have anything?

I would just say it seems like if you look at our associates, they go from the fall season, where they're going 1,000 miles an hour, and there's a lull, I mean there is still some sales of fertilizer products, but even now, they are starting to really, in their mind they're really gearing up for the seed season and the fall fertilizer season. And they are starting their planning, the programs and the design right now to do that, and that really kicks off the end of August and September, when they start going 1,000 miles an hour again. That's kind of the flow of the activity with our associates.

And that's contrasted with the construction product lines, which go right through the summer. Hot and dry weather actually is good for irrigation. We sell more products there, and then construction days add up in the summer, and we do good business in those other product lines. So once again, given our breadth across the country, our full range and breadth of product line, it tends to -- we tend to be able to balance out those weather events, or various weather trends, and you end up like we did at the half year, you end up with a full year good organic growth rate that reflects the underlying strength in the market.

Great. Thanks for the color.

Shannon O'Callaghan, UBS.

Doug, maybe just on the forecasting issue, maybe just explain that a little further, and just overall, how you are feeling about your forecasting methodology, and your visibility in terms of guidance?

Right. Seed is a very specific and somewhat complicated product line within our maintenance product line. It has less of our focus, and we had an issue and we caught it, we fixed it. We're constantly reviewing all of our processes, and as a company that's still building and developing, obviously we are improving processes, not just forecasting, but across the Company.

And we're excited about the team that we built, and we are excited about the fine tuning that we are doing, and we have better forecasting capability today than we had two or three months, ago, and I think that will continue as we go through this first year and tighten up our processes. So it was an issue, we caught it, we've obviously scanned all of our processes now, and we feel good about them, and feel good about our ability to give good accurate guidance going forward.

Okay, thanks. And then, maybe just a little more help on the second half, we have the agronomic pressure still in 3Q, but then we have a pretty tough comp also in 4Q. Could you help us a little bit more in terms of gauging what you're thinking for organic growth for 3Q and 4Q?

Yes. So we would probably see balance across Q3 and Q4. Again, it's hard to tell, because the season really hits in September and October. And that's the split, it gets split between the two quarters.

We do have a tougher comp in Q4, so we would be naturally forecasting a little bit lower Q4 organic growth than Q3. But it all depends on how the season hits in September and October.

Okay, so we're back to growth in 3Q and then a little softer in 4Q?

We would expect that, at this point in time. One trend I would like to just make sure you are aware of, we saw on the pricing side in the first half, our price, normal inflation of about 100 to 150 basis points. We do see that some raw materials have dropped, and we will see less price inflation in the second half, which could affect some of the organic growth rates, right?

So we would expect, and we've seen some flattening in pricing, if it flattens 50 to 100 basis points, we still have opportunity to make good gross margin gains, given our size, and the way we've been pushing on those initiatives. But in terms of organic growth, that could clip a bit off the back side of the year.

Okay, thanks.

Ryan Merkel, William Blair.

So just a follow up on the last point, the inflation point. Which raws are you referring to that are lower, and then what percent of your products would you expect to see prices fall, second half from first half?

We have seen inflation broadly across most of our product lines. It's been relatively equal, and it's not that we see prices falling, but we see prices flattening out. And I think probably, most of the pressure would be in the agronomics category, but John, do you want to add to that?

Yes, agronomics are going to be a little down, relative to other products. In general, I would say we've seen small, and we're talking single digits here, when we look at the broad mix, but more what we're seeing will be flattening, as we go to the second half of the year.

That's a good point. We are not looking at huge swings here. Were talking 0.5% and 1% types of movements. So fairly small movements in the scheme of things.

Got it. Okay. And then, a lot of puts and takes on sales. So maybe it's coming at a different way, are you still expecting to see industry growth for the year up 5%, is that still your target?

I think it would be dampened a bit by that price deflation. But generally we see that underlying market. So if you take 3% to 4%, and you add some inflation, in the second half, if you take that inflation away, that's what we would expect. We will see how the year develops, but we still do see a strong underlying market, and again, that's an average of agronomics, which is very low single digits, and the construction, that's more as you mentioned, the higher single digits.

Okay, and then is there a typical seasonality that we can think of from 2Q to 3Q to help us with modeling for the core business?

Why don't you take that one.

Could you elaborate a little bit more on what you're specifically?

You talked about a lot of your products being seasonal in nature, and I'm just wondering, just as a rule of thumb, is there a decline or an increase from 2Q to 3Q typical normal seasonality that we can think about to help us with modeling?

So yes, Q2 is higher as far as -- our daily sales are greater in Q2 than they would be in Q3. So I would think, just from a modeling standpoint, if you look at last year historical numbers, you would get a relatively good mix, as far as the way that seasons will follow.

Okay.

With the exception that Q4 last year was a bit stronger, so there might be a bit more movement there between Q3 and Q4.

All right, and just lastly, can you just discuss your list down price change? I know that really started in the first quarter. Did that built into the second quarter in terms of its relevance and impact?

And then can you quantify for us what percent of your year-over-year gross margin improvement was from this change to the list down? I'm just try to get a sense for how meaningful it is, as a part of the whole equation, here.

We did execute the list down in really Q1 and part of Q2, that's complete. It's settled in. Two reasons to do that, one is to make sure that our products are priced to value. And so, we talked about pricing some of the tail SKUs and making sure our products are priced to value.

From the cost up approach, which tended to constrain our local market leaders of having the pricing that was appropriate for that market. It has also made the pricing were consistent for our customers, so we could add more value there. That's been fully implemented. As I mentioned before, we really combine that with category as the two main contributors to that Q2, and they are both solid contributors to that Q2 improvement.

Okay, thank you very much.

Keith Hughes, SunTrust.

You had referred in a previous answer about second half of the year, 4% -ish organic growth over the industry comment. I know for you, you have a very difficult comparison in the fourth quarter, with your advantageous weather in that quarter. Is that going to skew what we see from you in the second half of the year? Any comments you can give us on the shape of third and fourth quarter in terms of organic growth would be helpful.

Like we said before, it's a bit hard to call. Because you had that two months that split the big season. And last year, our September was a little weaker, and our obviously December was stronger. So you would naturally think there would be some shift from the fourth quarter to the third quarter.

But again, that's hard to tell, weather, seasonality, et cetera. So not to be, it's hard to call at this point, but the natural inclination would be that we would have a slightly softer, on a percent basis, growth in the fourth quarter, and a slightly stronger in the third quarter. John?

That's exactly right.

Can you just tell us where we stand quarter to date in terms of same-store sales, or organic growth?

We're not going to quote any specific metrics. As we said before, our construction products are heading nicely toward norm, and we are still in the lull with the agronomics. On the agronomics side, as well as our nursery, the growth rates in the summer tend to be less meaningful than the ones in the season. So we just leave it with that guidance, and as we get more into the third quarter again, we will have a lot more visibility as we head into the busier part of the season.

Okay, thank you.

Bob Wetenhall, RBC.

Doug, it's either for Doug or Pascal, I just wanted to see if you are as confident in SiteOne's ability to continue gaining market share? You've been doing a lot of acquisitions, but I was really trying to understand the organic growth prospects with a large local strategy, if you still feel as excited about that as you did at the time of the IPO? any comments on that would be really helpful. Not really looking for anything quarterly, I want to move beyond that, and just really talk high level strategic. Is that theme still intact? Thanks, and good luck.

Thanks Bob. We were very excited about our ability to gain market share, and we will build -- we are already gaining market share, and we are still in the early days of building our great company. The large local strategy is a very effective one. It takes time to build that.

We've had to build the large side of that, which is the capability here at the center. That capability is largely a year or two old, so it's in its infancy, if you will. Our field is extremely experienced, passionate, driven. They know the customers well. And as we sync those two up, and combine those two, it's a very powerful combination.

So we have good confidence in it. We have our initiatives designed to support that. And as you see those unfold, they will not only help us expand our margin, but when we get into the sales force performance and the marketing, as well as the supply chain, now you will see even more weapons for our local field to go out there and gain share by adding compelling value to our customer, better ideas, better tools, better products, and better services.

So we are just as excited, maybe more excited now than we were a year ago. Or obviously, three or four months ago during the IPO.

Cool. Thanks, good luck.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Okay, thank you all for joining us today. We appreciate the questions, and certainly appreciate your interest in SiteOne. We are very pleased with the strong start to the year that we've had. We're excited about the longer term growth and profitability potential of our Company. And we look forward to updating you again on our third-quarter results in November. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.