Earnings Call: Q2 2016

Aug 17, 2016

Greetings, and welcome to the SiteOne Landscape Supply Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pascal Converse, 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 slide during this call. I'm 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 our performance. The presentation of this additional information should not be considered in isolation or as 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 Q2 results. I will then pass the call along to John Guthrie, who will walk you through our financial results in more detail. Pascal Commerce 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'll 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 Bisset earlier this month. In addition to organic and acquisition growth, we also have 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 Q2, SiteOne once again realized the benefits of these initiatives, expanding our gross margin by 2 20 basis points. Turning to Slide 5, we are pleased with our financial and operational performance in the Q2 as we delivered solid results for the 3 months ended July 3, 20 16, despite the pull forward of organic sales into the Q1. I am 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 1st 6 months of 2016. Our organic growth for the 2nd quarter was negatively impacted by the pull forward of sales into the Q1 due to the early spring and result in very strong demand. On last quarter's call, weather conditions in April 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 the 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 buildup to the forecast, we incorrectly included some of that feed volume to blenders in our estimates for the 2nd quarter sales. Note that this issue had no effect on our forecast for EBITDA. We identified the issue and have since fixed our forecasting process to exclude this volume going forward. 2nd, 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 percent total sales growth for the 1st 6 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 2nd 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 from our commercial and operational initiatives for the next several years. Adjusted EBITDA increased by 12 percent to $74,900,000 and margin increased by 80 basis points to 14.6%. For the 1st 6 months of the year, we generated adjusted EBITDA growth of 30%. Lastly, we continue to execute our acquisition strategy with the addition of BOOMAX 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 Q2 2016 results. We reported solid results for the quarter with net sales of $513,000,000 up 7% compared to $482,000,000 in the Q2 of the prior year. We experienced a decline in organic sales of 2% for the quarter, but an increase of 7% for the 1st 6 months of 2016. Organic sales for the Q2 were negatively impacted by the pulp water sales into the Q1 due to the early spring. As Doug mentioned, we reported 23% organic growth in the Q1. Acquisitions in the 2nd quarter contributed $42,000,000 or an additional 9% to our growth rate. Looking at our organic growth in a little more detail. We saw the sale of our irrigation, lighting, nursery, landscape accessories and hardscapes grew 2% in the 2nd quarter and 10% for the 1st 6 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 May. We saw a good recovery in organic sales, however, in June. Our agronomic products, which include fertilizers, control products and other lawn care products, experienced a decrease of approximately 11% during the 2nd quarter following the 21% growth in the Q1. These products, which account for approximately onethree of our annual sales, more heavily impacted by the fall forward as contractors applied pre emergent fertilizers and control products earlier in Gross profit increased 14% to 168 point Gross profit increased 14% to $168,500,000 compared to $147,500,000 during the same period last year. Gross margin was 32.8 percent for the Q2 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 their early innings, and you're seeing that progress continue in the Q2. 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 $118,000,000 from $91,300,000 in the same period last year, while SGA 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 acquisitions, expenses related to our IPO and dividend and recapitalization and higher labor expense to support our growth initiatives. The impact from the expenses related to the IPO and debt recapitalization was $11,200,000 which increased our SG and A as a percent of sales by 220 basis points. Net income in the second quarter was $26,900,000 on a reported basis compared to $33,200,000 during the same period last year. The decline in net income for the 2nd quarter was attributable the IPO and debt recapitalization costs of $7,400,000 on an after tax basis and higher interest expense of $2,300,000 after tax. Net loss attributable to common shares was $88,600,000 for the 2nd quarter, which resulted in a corresponding loss of $3.18 per share, the loss as a result of the $115,500,000 preferred stock dividend recognized prior to the IPO. The weighted average for the common shares outstanding used in the earnings per share calculation was 27,900,000. The total common shares outstanding at the end of the 2nd quarter was 39,500,000. 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 $74,900,000 compared to $66,600,000 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 342,000,000 dollars for the 6 months ended July 3, 2016, versus $297,000,000 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 $397,000,000 which yields a leverage ratio of 3.2x our LTM adjusted EBITDA. Cash flow for $2,200,000 for the quarter $12,200,000 for the 1st 6 months compared to $27,800,000 $12,600,000 for the same periods in 2015. The change in operating cash flow for the 2nd quarter reflects the timing differences in our working capital resulting from the early spring. We made investments of $13,000,000 for the quarter, including $10,500,000 for acquisitions and $2,500,000 for capital expenditures. This compares to $10,700,000 in the Q2 of 2015, of which $8,800,000 was for acquisitions and $1,900,000 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 3.2x adjusted EBITDA from 3.5x pro form a for the 1st quarter, ultimately working towards our longer term leverage ratio target of 2x to 3x. 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 play a key role within our overall growth strategy. As shown on Slide 8, we have now acquired 11 companies over the past 2 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, acquired Blue Max Materials in April. Blue Max added 5 locations to our existing footprint of 26 stores in the Carolinas and makes us number 1 in hardscapes there. The Bluemax team will also be instrumental in helping execute Superior hardscape best practices across SiteOne. Now 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 Bizet Nursery and Bizet Equipment Company, which complement very well our existing business in the agronomic, irrigation and outdoor lighting product lines, who believe make 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're now the number one professional landscape distributor in those markets. The acquisition of Vistat 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 choice in the industry. Year to date, we have completed 3 acquisitions, which contribute $140,000,000 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'd 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 twenty sixteen. We executed an IPO, reset our capital structure, added 3 very strategic acquisitions, strengthened our team of 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 blow in the market, driving lower overall organic sales growth so far in the Q3. Note that the summer months of June, July August are typically slower months for agronomic product 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 than predicting the full year. Demand for these products will typically pick up in early September through October during the fall application and planting season. So overall, we feel good about the positive drivers in demand, which support continued organic growth in the second half of twenty sixteen. We will have more visibility in September 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 are still in the early stages of development. Lastly, the acquisitions that we have completed to date are performing well and we 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 than 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 fiscal year 2016, we reiterate our guidance and expect adjusted EBITDA to be in the range of $132,000,000 to $140,000,000 representing year over year growth of 24 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. Thank you. We will now be conducting a question and answer session. Due to time constraints, we ask that all callers limit themselves to one question and one follow-up. If you have additional questions, you may re queue and those questions will be addressed time permitting. Thank you. Our first question comes from the line of David Manthey with Robert W. Baird. Please proceed with your question. Mr. Manthi, your line is live. Perhaps you have yourself on mute. Yes. Thank you. Good morning, guys. Good morning. Good morning. So thanks for clarifying on the forecast and outlining. It sounds like the end of June and into July August were 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're further along than you had initially planned? Or are you seeing more No, I think we're where we 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 kind of in the mid stages of both pricing and category. We're in the early stages, obviously, of supply chain, which we would look to start really kicking in, 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 strategic players? Are there any PE buyers out there? Could you just strategic players? Are there any PE buyers out there? Could you help us with that? Yes. Good morning, David. Well, the multiples remain the same. We don't see much changes. Most of the acquisitions we're doing are exclusive discussions. Here and there, we'll see you saw that pool horizon acquired 1 company, but they'll do that every 2 to 3 years. PE, not much acuity from the PE. So, I would say, so far, pretty much the same story, reasonable multiple. That's great. Our next question comes from the line of Bob Wietenhold with RBC. Please proceed with your question. Hey, good morning and congrats on making that nice EBITDA number. I was hoping you guys could step me through the drivers kind of like the relative contribution on the 2 20 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? Okay. Good question, Bob. 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 is pricing the value for the various product lines. Obviously, we remain competitive with our customers, but we're pricing to those products that carry more value than others and categories, working with our suppliers to create win wins. As we push more volume 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 of the second half of your question? No, it was I'm sorry, it was hot and cold. Yes, let me address the second question, which is 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 dramatically. Well, seasonally, you will see our gross profit margins really kind of peak in the Q2 and then go down from there. Just looking at prior year, you'll see a couple of basis points of percentages dropping quarter to quarter. I think it's important to remember, though, that the improvements in our initiatives kind of go across all product lines though. And so while the mix changes the overall number, the improvement year over year, I think our efforts are across all products. That's a very helpful clarification. And 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 of that $132,000,000 to $140,000,000 range just based on the fact that your profitability on a lower sales number in 1H is ahead of your expectations. 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. Yes. 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 toward the midpoint at this stage. In terms of market outlook, we are seeing good come back in our construction related products. As we mentioned, we do we are in a bit of a lull with our agronomics and nursery products. This is a slow time of year. So kind of 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'd be too early to call within that range. We should be able to tighten that up or give more insight, obviously, when we do our 3rd quarter earnings release. Makes sense. Good luck, gentlemen. Our next question comes from the line of Nishu Sood with Deutsche Bank. Please proceed with your question. Thanks. 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. Now on the call it the more construction or discretionary sensitive portfolio, the irrigation, lighting, nursery accessories, etcetera, hard escapes. I think you said up 2% in the second quarter and 10% for the 1st 6 months of the year. Now that's a business that can get with the positive construction trends, high single digits 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 Q3 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 about the Q3 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 kind of back toward normal levels for the construction related products. So we think the pull forward effects, etcetera, have abated, and we're back to kind of a normal trajectory in those products. And 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 that continued weakness of that into the Q3? I mean, that 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 Q2? And what do you think accounts for that? I mean, is it unusually hot? We've had some well, the rains have settled down a bit in the Q3, it looks like. But is it the heat or what do you think is driving that? And then what's the trigger as you mentioned in the I think in the fall season you mentioned the pre application for the winter. So what would be the trigger point to kind of get that back on track? Right. Well, a great question. So first of all, for our agronomic product, it's important to note that about almost 50% of that product seasonal. And as you mentioned, they are weather affected. And there's all different types of effects. Sometimes for some things, hot and dry weather is good. You have more fungus and we sell more fungicides and control products. But the planting abates and you have less fertilizer. So the agronomic products do tend to move around month to month, quarter to quarter. Over a full course of a 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 1 to the positive. We had that pull forward reflected in our Q2. We have certainly improved versus the negative 11% Q2 growth rate, but we're in that summer low. 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's 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's still some sales of fertilizer products. But even now, they're starting to really in their mind, they're really gearing up for the season and the fall fertilizer season. And they're starting their planning, the programs and the design right now to do that. And that really kicks off end of August September when they start going 1,000 miles an hour again. And that's kind of the flow of activity with our associates. And that's contrasted with the construction park lines, which go right through the summer, right? The 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. Our next question comes from the line of Shannon O'Callaghan with UBS. Doug, maybe just on the forecasting issue, maybe just explain that a little further and just overall how are you feeling about your forecasting methodology and your visibility terms of guidance? Right. Yes. Well, seed is a very specific and somewhat complicated product line within our maintenance product line that has less of our focus. And we had an issue. 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're improving processes, not just forecasting but across the company. And we're excited about the team that we've built, and we are excited about the fine tuning that we're doing. And we have better forecasting capability today than we had literally 2 or 3 months ago. And I think that will continue as we go through this 1st 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. And then on maybe just a little more help on the I mean, the second half, we have the agronomic pressure still in 3Q, but then we have a pretty tough comp also in 4Q. I mean, could 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 balanced across Q3 and Q4. Again, it's hard to tell because the season really hits in September, 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 in Q3, but it all depends on how the season hits in September 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'd like to just make sure you guys are aware of, We are we saw on the pricing side in the first half our price normal inflation of about 100 basis points to 150 basis points. We do see that some raw materials have dropped, and we'll 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 backside of the year. Okay. Thanks. Our next question comes from the line of Ryan Merkel with William Blair. Please proceed with your question. Thank you. So just to follow-up on the last point, the inflation point, which rods 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? Yes. We've 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 the 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. But in general, I would say we've seen a small I mean, 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. Right. And that's a good point. We're not looking at huge swings here. We're talking 0.5% 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 it a different way. Are you still expecting to see industry growth for the year up 5%? Is that still your target? I think that would be dampened a bit by that price deflation, right? But generally, we see that kind of 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'll 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 constructions, 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 specifically Yes, 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, I guess, or an increase from 2Q to 3Q typical normal seasonality that we can think about to help us with modeling? I mean so yes, I mean, 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 looked at last year's historical numbers, you would get a relatively good mix as far as the way the seasons will follow. Okay. That's helpful. With the exception of Q4 last year was a bit stronger. So it might be a bit more movement there between Q3 and Q4. All right. And then just lastly, could you just discuss your list down price change? I know that really started in the Q1. Did that build into the Q2 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 trying to get a sense for how meaningful it is as a part of the whole equation here. Right. Well, just we did execute the lift down in really Q1 and part of Q2. That's complete. It's settled in. Two reasons to do that. 1 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, is also make the pricing more 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 2 main contributors to that Q2. And they're both solid contributors to that Q2 improvement. Okay. Thank you very much. Our next question comes from the line of Keith Hughes with SunTrust. Please proceed with your question. Thank you. You referred in a previous answer about second half of the year 4% organic growth, I guess that was the industry comment. I know for you, you have a very difficult comparison to the 4th quarter with the very advantageous weather in that quarter. Is that going to skew what we see from you in the second half of the year? Just any sort of comments you give us the shape of 3rd Q4 in terms of organic growth would be helpful. Well, yes. Like we said before, it's a bit hard to call, right, because you have that you have 2 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 4th quarter to the 3rd quarter. But again, that's hard to tell, weather, seasonality, etcetera. 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 4th quarter and a slightly stronger than the 3rd quarter. John, you could add to that. That's exactly right. And where do we 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 headed nicely toward norm and we're still in a low with the agronomics. So on the agronomic side as well as our nursery, the growth rates in the summer tend to be kind of less meaningful than the ones in the season. So we just leave it with that guidance. And as we get more into the Q3, again, we'll have a lot more visibility as we head into the busier part of the season. Okay. Thank you. Our next question is from the line of Bob Wheatonwell with RBC. Please proceed with your question. Hey, thanks question. Doug or it's either for Doug or Pascal, jump off. I just wanted to see if you guys are as confident in SiteOne's ability to continue gaining market share. And you've been doing a lot of acquisitions, but I was really trying to understand the organic growth prospects with the large local strategy. If you still feel as excited about that as you did as 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 scheme still intact? Yes. Thanks, Bob. No, we were very excited about our ability to gain market share. And we will build we're already gaining market share, and we're still in the early days of building kind of our great company. And 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 2 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 2 up and combine those 2, 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'll 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 3 or 4 months ago during the IPO. 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're 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 3rd quarter results in November. Thank you. Ladies and gentlemen, this does conclude today's