Earnings Call Transcript - SITE Q2 2021

Operator, Operator

Greetings and welcome to SiteOne Landscape Supply, Inc. Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. John Guthrie, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

John Guthrie, CFO

Thank you and good morning everyone. We issued our second quarter 2021 earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website at investors.siteone.com. I'm 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 the 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, CEO

Thank you, John. Good morning and thank you for joining us today. We were very pleased to continue our excellent momentum during the second quarter with outstanding growth in sales and profits. We have seen the robust demand for professional landscaping services continue with strong residential repair upgrades and new home construction, increasing commercial activity, and steady maintenance growth. In this environment, our terrific teams have continued to perform well, delivering superior value to our customers and suppliers while overcoming rapid product cost inflation, select supply shortages, and ongoing freight and labor constraints. As a result, we are continuing to steadily win market share on top of the underlying market growth. Lastly, we made great progress on our commercial and operational initiatives during the quarter, while adding three high performing companies to our family through acquisitions. 2021 is shaping up to be a breakthrough year for SiteOne as we continue to build our great company and execute our long-term strategy. I will start today's call with a brief review of our unique market position and our strategy for long-term performance and growth 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 and review some of the trends that we are seeing in our end markets and address our outlook for the remainder of the year before taking your questions. As shown on Slide 4 of the earnings presentation, we have grown our footprint to more than 590 branches and three major distribution centers across 45 US states and 6 Canadian provinces. We are the clear industry leader, yet we estimate that we only have about 13% share of the very fragmented $20 billion wholesale landscaping products distribution market. Accordingly, our remaining growth opportunity is significant. We have a balanced mix of business with 59% focused on maintenance, repair and upgrade; 27% focused on new residential construction; and 14% on new commercial construction. We are also the only national full product line wholesale distributor in the market. Our balanced end-market mix, broad product portfolio, and geographic spread give us multiple avenues to grow and more ways to add value for our customers and suppliers while providing important resiliency in softer markets. Turning to Slide 5. Our large and local strategy combines the scale, resources, and capabilities of a large world-class company with the passion, deep knowledge, and entrepreneurialism of our local teams in order to deliver superior value and differentiate us from our competition. While we have come a long way in building SiteOne, we are still in the early to middle innings of developing our full capabilities across all our product lines. And so, we remain highly focused on our commercial and operational initiatives to build our capabilities and improve the value that we deliver to customers and suppliers. These initiatives are complemented by our acquisition strategy, which builds in our product portfolio, moves us into new geographic markets, and adds terrific new talent to SiteOne. Taken altogether, our strategy creates superior value for our shareholders through organic growth, EBITDA margin expansion, and acquisition growth. If we turn to Slide 6, you will see that our strategy is working. Over the last five years, we've been able to deliver consistent organic growth, strong acquisition growth, and solid EBITDA margin expansion while investing heavily in SG&A to build our IT, category management, supply chain, finance, marketing, operational excellence, and acquisition teams, as well as our underlying systems infrastructure, including our digital capabilities. While work remains to be done on building our systems infrastructure, our field support teams are largely in place and each year, our teamwork and synergies across SiteOne improve along with our ability to leverage our infrastructure investments. You can see this in our increased market share gains, organic growth, and in the improved operating leverage that we are continuing to achieve in 2021. Going forward, we will build and leverage our capabilities further to accelerate performance for all stakeholders. You will also note that we have now completed 61 acquisitions across the irrigation, agronomics, nursery, and hardscapes product lines during the last 7.5 years with five completed so far in 2021. We only acquire well-run companies and so all of these acquisitions were already high-performing companies before joining SiteOne. With them, we have added significant capability and tremendous talent and we have learned many lessons that can be applied to future acquisitions. Our acquisition pipeline remains very robust and we have significant potential to continue growing through acquisition for many years to come. In summary, our strategy is working, we are still early in our execution, and you will see us get stronger every year as our key initiatives gain more traction.

John Guthrie, CFO

Thanks, Doug. I'll begin on Slide 9, with some highlights from our second quarter results. We reported a net sales increase of 33% to $1.1 billion in the quarter. There were 64 selling days this quarter consistent with the prior year period. Organic daily sales increased by 22% for the quarter due to strong demand as consumers continue to invest in their outdoor living spaces. Organic daily sales for landscaping products which includes irrigation, nursery, hardscapes, outdoor lighting, and landscape accessories were strong again this quarter, increasing 24% compared to the prior year period. We saw strong growth in the repair and remodel end market, which is benefiting from homeowners upgrading their backyards as well as the residential construction end market, which is benefiting from strong demand for new housing. Organic daily sales for agronomic products, which includes fertilizer, control products, ice melt, and equipment, grew 17% this quarter due to the stay-at-home trend as homeowners are also spending more on maintaining their lawn. Geographically, all regions achieved double-digit organic daily sales growth. As Doug mentioned, our customers remain very busy, and we continue to see strong sales growth in July though at a slower pace due to the higher counts. As a reminder, organic daily sales growth increased from 3% in the second quarter of last year to 11% and 12% in the third and fourth quarters respectively. Therefore, we anticipate solid growth for the remainder of the year, but not at the growth rate seen in the second quarter. Prices increased 8% for the second quarter and 6% for the first six months, which exceeded our previously communicated range of 3% to 5%. We saw supplier costs continue to increase during the quarter with the greatest increases for irrigation products like PVC pipe and copper wire, as well as agronomic products like grass seed and fertilizer. All products have also been impacted by increases in freight, although our strategic initiatives in supply chain had helped mitigate the impact. We are managing through these cost increases in the market; for the most part, we're passing them through into higher prices. We do not see these cost increases abating anytime soon and are increasing our expectation for price inflation for the full year to 6% to 8%. Acquisition sales, which reflect the sales attributable to acquisitions completed in both 2020 and 2021, contributed approximately $90 million or 11% to the overall second quarter growth rate. We are pleased with the performance of our acquisitions in our overall deal pipeline. Gross profit increased 36% to $388 million for the second quarter and gross margin increased 80 basis points to 35.8%. The gross margin improvement reflects the execution of our supply chain initiatives, favorable pricing, and a more favorable customer mix due to continued growth with smaller customers. With regards to the supply chain initiatives, we have benefited from the previously mentioned initiatives in freight, as well as some strategic buys ahead of supplier price increases. Selling, general and administrative expense or SG&A increased 29% to $226 million for the second quarter, SG&A as a percentage of net sales decreased 60 basis points to 20.8%. The reduction in SG&A as a percentage of net sales reflects our strong organic daily sales growth combined with solid cost management. For the second quarter, we recorded income tax expense of $36.8 million compared to $25.6 million in the prior year period. The effective tax rate for the quarter was 23% compared to 24.5% for the prior year period. The decrease in the effective tax rate was due primarily to an increase in the amount of excess tax benefits from stock-based compensation. For 2021, we expect our effective tax rate will be between 25.5% and 26.5% excluding discrete items such as excess tax benefit. We recorded net income for the second quarter of $123.5 million compared to $79.1 million for the prior year period. The improvement was primarily driven by our strong sales growth, gross margin improvement, and SG&A leverage. Our weighted average diluted share count for the second quarter was $45.8 million compared to $43.1 million for the prior year period. This increase was primarily attributable to our August 6, 2020 equity offering. Adjusted EBITDA for the second quarter was $190.6 million compared to $132.1 million for the same period in the prior year. Adjusted EBITDA margin reflecting our gross margin improvement and SG&A leverage increased 140 basis points to 17.6%.

Scott Salmon, EVP, Strategy and Development

As shown on Slide 11, we acquired three companies in the second quarter, bringing our total to five year-to-date, with combined trailing 12 month net sales of approximately $90 million. Since 2014, we have acquired 61 companies with over $1.1 billion in trailing 12 month net sales. Turning to Slides 12 through 14, you will find information on our most recent acquisitions. On April 30, we acquired Timberwall Landscape & Masonry Products, expanding our leading hardscapes position in the Greater Minneapolis market, established in Q4 2020 when we acquired Hedberg Supply. Also, on April 30, we acquired Melrose Irrigation Supply, extending our leading irrigation presence in Florida by adding six locations across South Florida. Melrose brings a great team and excellent new locations to serve the growing Florida market. And on May 7, we acquired Rock & Block Hardscape Supply, expanding our leading hardscapes presence in Southern California. Rock & Block serves the San Diego, Southern Orange County, and Inland Empire markets in California from two locations focused on the distribution of hardscapes and landscape supply. Summarizing on Slide 15, our acquisition strategy continues to create significant value for SiteOne. Our pipeline remains strong, expanding across all geographies and lines of business, and we're excited to be partnering with the highest performing companies in the industry and bringing outstanding new talent to SiteOne. These innovative leaders bring new ideas to SiteOne and help us realize our vision of being stronger together. We are honored that so many of these entrepreneurs chose to continue their careers at SiteOne. Long after they sold their family business, they are helping the SiteOne family provide outstanding value to our customers, suppliers, and communities. I want to thank the entire SiteOne team for their passion and commitment to making SiteOne a great place to work. This continues to be the driving force, which allows us to add terrific new companies and associates, and I'm confident in our ability to deliver value to all of our stakeholders through further acquisitions in 2021 and beyond.

Doug Black, CEO

Thanks, Scott. I'll wrap up on Slide 16. As mentioned, we've seen the demand turn moderate somewhat in June and July from the first five months of the year against the higher comparable sales growth in 2020, which started in June. With the tailwind of higher inflation, we are seeing continued organic sales growth across all product lines, customer segments, and geographies. Overall, sales growth has held up better than we had expected. Given our customers' current backlog of work and the underlying positive development that we see in the economy and in both residential and commercial construction, we expect to see solid organic sales growth for the remainder of the year. In terms of end markets, we would expect maintenance, which comprises 41% of our business, to be steady during the remainder of the year with low to mid-single digit growth. We have terrific capability and great momentum in maintenance with our market-leading LESCO brand, and so we are very confident in our ability to perform in a steady market. Residential new construction and repair and upgrade, which comprise 27% and 18% of our business respectively, are expected to remain very strong through the end of the year and likely into 2022. Our customers have deep backlog in residential and do not plan to slow down. These markets will continue to be constrained by labor, weather, and possible supply shortages. The new commercial construction market, which represents 14% of our business, has been the biggest surprise this year. Commercial activity has continued to be positive, and we see encouraging developments in the ABI Index and in our own commercial bidding activity, which would support further growth ahead. We now expect commercial construction to be solid through the remainder of the year. Taken altogether, we expect to achieve solid organic daily sales growth in the second half of the year and record sales growth for the full year 2021. Additionally, we will continue to execute our commercial and operational initiatives, which we believe will yield good gross margin improvement and SG&A leverage leading to strong adjusted EBITDA growth and margin expansion. As mentioned, we now expect to exceed our 10% milestone for adjusted EBITDA margin in 2021. In terms of acquisitions, as Scott mentioned, we currently have a very strong pipeline of high-quality companies and look forward to adding more of these to the SiteOne family over the remainder of the year. Our acquisitions are performing very well, and we continue to improve our ability to integrate them into our company, improve our customer value, and create synergies together. Accordingly, we expect acquisitions to contribute strongly to our performance and growth in 2021 and the years ahead. Taken altogether, we are raising our fiscal 2021 adjusted EBITDA guidance to be in the range of $335 million to $365 million, which represents year-over-year growth of 29% to 40%. This range does not factor any contribution from unannounced acquisitions. This compares to our prior estimate of $300 million to $320 million EBITDA. In closing, I would like to sincerely thank all of 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 of 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, Operator

Thank you. At this time, we'll be conducting a question-and-answer session. Your first question comes from the line of Ryan Merkel with William Blair. Please proceed with your question.

Ryan Merkel, Analyst

Thanks, good morning everyone and to the next quarter.

Doug Black, CEO

Thanks, Ryan.

Ryan Merkel, Analyst

First off, on M&A, it's been quiet since May. My sense is, you expect 2021 is going to be as big as 2020. So, have there been any changes in target desire to sell or is this just maybe some timing pushing back a bit?

Doug Black, CEO

Yes. Thanks, Ryan. I would say it's just a matter of timing. We still feel confident that we can deliver a solid year of acquisitions. And if you recall last year, although we had the COVID pause, we were at about $40 million in acquired sales and ended at $190 million. So, I feel still very confident about our pipeline. Definitely about our team and our valuation process is going strong, so I wouldn't be concerned about it.

Ryan Merkel, Analyst

All right. That's great to hear. And then gross margins, given nice execution, given the backdrop, some of the drivers you listed, are they sustainable for the second half and should we expect gross margins to expand year-over-year during the second half of 2021?

John Guthrie, CFO

Yes. We feel we're in good shape as we indicated last quarter with regard to gross margin. Most of the market is passing through cost inflation, but the market is adjusting. So we feel good about that. Also, with regard to our supply chain initiatives, we think will be positive. So we're optimistic about a positive gross margin outlook for the second half of this year, year-over-year improvement.

Ryan Merkel, Analyst

Great to hear. All right, thanks.

Operator, Operator

Your next question comes from the line of David Manthey with Baird. Please proceed with your question.

David Manthey, Analyst

Thank you. Good morning, everyone. First off, John, could you, I'm not sure if you mentioned the price realization in the quarter, could you give us that as well as a breakdown by agronomics and landscape products?

John Guthrie, CFO

It was 8% for the quarter. We're seeing—in agronomics was 3% to 4% with the balance being in landscaping products. We're seeing the greatest increases in probably the irrigation product line, PVC pipe, copper wire, and resin that goes into a lot of the product is driving a lot of that. And then, even in agronomic products, there are select products that are seeing price inflation. Fertilizer rates are up, fertilizer prices cost are up, grass seed costs are up, and in general also kind of freight costs are increasing overall. So we've seen more of this this quarter, but fortunately the market is adjusting. There's always some transition, but the market is adjusting to the new cost.

David Manthey, Analyst

Yes, makes sense. And second, how do you gauge your customer backlogs? Is that all anecdotal conversations with the branches, or do you have some quantitative indicators you look at? And related to that, I'm wondering, you talked about your share of wallet in customer support, do you have metrics on same-store customer count or average revenues per customer or anything like that?

Doug Black, CEO

In terms of backlog, David, it is largely anecdotal. We are in constant communication with our customers. We do have an outlook through our project services bidding group. So we do commercial bidding and certainly we can track the number of bids that we're submitting, the win rate and etcetera. And so we've got a lot more detail there, but commercial is a smaller part of our business, so on the residential side, it's mostly just customer conversations and anecdotal. And then, in terms of wallet share, customer count, growth with different customer segments, we do segment our customers by size, by business type, and so we track all of that. We're getting more sophisticated on wallet share with our new CRM going in, that will get a lot tighter, but we certainly can see the number of customers, whether we're growing transactionally by customer, etcetera, and those metrics are largely positive. As we mentioned on the call, we're growing faster with the smaller customers. We're actually growing faster with the Hispanic customer segments than we are on average, and that's a targeted strategy because our share is lower with the smaller customers than it is with the larger customers, just by the nature of how we've grown in the past, and so there's a big opportunity there and we see positive indicators that our strategies are working. Our new marketing efforts are starting to work. Our teams are doing a great job and that's good profitable growth for Slide 1.

David Manthey, Analyst

Good to hear, Doug. Thank you.

Doug Black, CEO

Thanks, David.

Operator, Operator

Your next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.

Matthew Bouley, Analyst

Hey, good morning. Congrats on the results. Thank you for taking the questions. I want to ask about the long-term EBITDA margin target. It sounds like there's going to be a new, I guess sort of official one to come, maybe at the end of the year. So we don't get too far ahead of ourselves, but conceptually, assuming that target will be higher, what might be the path then from here that we can look forward to between SG&A leverage, and other drivers of gross margin expansion? Just what are some of the guide posts we can look out for?

Doug Black, CEO

All right. Well thanks, Matthew. Yes, we're pleased to be surpassing that milestone that we set several years ago and we always positioned that as a milestone. We think our EBITDA potential is significantly higher and so we will be setting that mark as we report the full year, early next year. In terms of opportunities, we're still in the early to middle innings of building our company. And so if you look at our digital capabilities and what we expect to do there, our operating best practices across our branches and overall pay off of our infrastructure and field support investments, we think we can drive SG&A down further over the next three to five years. There’s quite a bit of runway there. And then on the gross margin side, we have quite a bit of runway as well. I mentioned small customer growth. We're still at private label around 15%-17% of our business. We'd like it to be double that as it brings on profitable growth, and we have more room to go on our supply chain efficiencies, our category management with our suppliers, and those initiatives still have legs to run. So consider us in the third inning of a nine-inning game and we have a lot of runway on both sides, SG&A and gross margin to make SiteOne a more profitable company.

Matthew Bouley, Analyst

Wonderful, that's great color. Thank you for that, Doug. Second one just on the EBITDA guide. I guess sort of a $30 million range is a little larger than you've given historically at this point in the year. Maybe part of that is a bigger company now, but maybe you can speak to kind of what are the areas of uncertainty around that guide, kind of drivers of the high-end versus low-end?

Doug Black, CEO

Yes, I'll take that. And then John may have some comments. It's really around organic growth. I mean, we feel good about our gross margins and opportunities there. We know what we're going to spend in terms of investment in our teams and our initiatives, etcetera. So it gets down to organic growth. As we mentioned, the growth has been strong against tougher comps in June and July. We expect the third quarter to perform well. It's really the fourth quarter that has more variability. Last year, we had extremely good weather as well as a very strong market, and so we're cautious of how we would perform against that. We are subject to weather in the fourth quarter. It's a smaller quarter and that's probably where the variability is, and that defines our range primarily. The other factors, we feel pretty good about. John, anything to add to that?

John Guthrie, CFO

No, I think you covered it. It's organic growth, primarily variability and uncertainty in the fourth quarter. In addition, in the fourth quarter, we do lose a week of sales, but that's built into the guide from that standpoint, but it's the uncertainty in Q4 that may affect top or bottom.

Matthew Bouley, Analyst

Right, understood. Well, thanks for the details, and congrats on the results again.

Doug Black, CEO

Thanks, Matthew.

Operator, Operator

Your next question comes from the line of Keith Hughes with Truist. Please proceed with your question.

Keith Hughes, Analyst

Thank you. You made some positive comments on June and July and that was going to hit double-digit growth. Can you give a sort of a feel for what the comps are looking at—where the comps are coming in out of these numbers as we hit these—hit the pickup in business last year?

Doug Black, CEO

Yes, we were at 11% and 12% in Q3 and Q4. So that is what we're comping against. Q4 especially was strong in November and December because they were especially warm. So those are the comps we're running against as opposed to we were comping against that 3%. So, about a roughly 10% increase in comps from that perspective.

Keith Hughes, Analyst

Okay, so for June and July, are you running up mid-single digits—I mean it was double-digits in June and July last year—is that roughly what we're looking at or can you give us any feel on that?

Doug Black, CEO

Yes, I think we might be a little stronger than that. We're still strong in June and July, but it would be in the low double-digit range in those months.

Keith Hughes, Analyst

And inflation is probably running a little bit hotter than what it was in the second quarter, is that a fair statement as we still get price increases coming out, correct?

John Guthrie, CFO

Yes. I would say it's similar to the second quarter, maybe slightly higher.

Keith Hughes, Analyst

Okay. And then, your comments on commercial are very interesting. Any sort of feel for what parts of the commercial market are the strongest, and will it still be next year report that business would really see boots on the ground pickup in a strong demand scenario?

Doug Black, CEO

We've seen the strength kind of come through, and it's the type of commercial that follows residential, retail, fast food, those types of—obviously it's not the office side of the market etcetera and when you look at kind of inter-city or high-rise, that does not have a lot of landscaping. So what we're seeing is strong residential and then commercial following that as you need to build out and support those expanding neighborhoods.

Keith Hughes, Analyst

Okay, thank you.

Doug Black, CEO

Thank you, Keith.

Operator, Operator

Your next question comes from the line of Mike Dahl with RBC Capital Markets. Please proceed with your question.

Mike Dahl, Analyst

Thanks for taking my questions, Doug and John. I appreciate the color so far. I wanted to stick with the second-half guide. It sounds like just based on the price inflation guide, your pricing is 6% to maybe 10% implies for the back half of the year, which gives you a nice tailwind on organic. Can you give us just a better sense from a volume standpoint, what you expect the volume contribution to be in the second half and then the split between 3Q, 4Q? To your point, I mean the comps in 4Q?

Doug Black, CEO

We're not giving specific guidance with regards to the volume, but we expect Q3 to be significantly stronger than Q4, which is what's built into our guide. If you look at the EBITDA guidance range, it's primarily around the variation with regards to Q4, regarding where we end up.

Operator, Operator

Your next question comes from the line of Damian Karas with UBS. Please proceed with your question.

Damian Karas, Analyst

Good morning, guys. Congrats on another solid quarter.

Doug Black, CEO

Good morning. Thank you.

Damian Karas, Analyst

We've covered a lot of ground here. Maybe just a follow-up question on pricing. You alluded to the incremental inflation over the last few months and the 8% or so price that you're looking to pass through for the year. Just curious as supply chain issues eventually start easing, do you expect to get some of that price back that's driving some of the daily organic sales growth this year? Maybe you could just talk about how we should think about what the price impact could end up looking like next year.

John Guthrie, CFO

I wouldn't expect in general that we would see much price deflation. I think the market is pricing up given the increased demand. There will be certain items we can identify some of the more commodity items, but in general, we think most of this price—after years of very low price inflation and the fact that the demand is driving it from our suppliers, we don't expect a major decrease in cost coming to us significantly. I mean, we can obviously identify certain items of more commodity-related that would do that. But if you look at the overall picture, I don't think that we would see—we would be putting in a negative number on next year from that input.

Doug Black, CEO

Just to reinforce that, remember that we operate across a very broad product range, from irrigation products that are driven by resins and chemicals which have their own drivers to fertilizer, nursery, hardscapes, landscape supplies like soil and mulch. When you take that altogether, It's typically a very stable portfolio of products that tend to average out. So we have seen elevated levels, but we think that will settle back down, but it's not likely to go negative in terms of the whole portfolio together; it's likely just to soften to our typical kind of lower number.

Damian Karas, Analyst

Okay, great. That's really helpful. And then if you wouldn't mind just clarifying related to the guidance, how much contribution from acquisitions you're assuming for the full year?

John Guthrie, CFO

We don't split out acquisitions, but we have not included any new acquisitions that we haven't already closed. So, it would be incremental EBITDA potentially for additional acquisitions at the same time that we closed in November-December that there could be losses due to seasonality, but no acquisitions that haven't been announced or closed are included in our current guidance.

Damian Karas, Analyst

Fair enough. Appreciate the time. Best of luck, guys.

Doug Black, CEO

Thank you.

John Guthrie, CFO

Thank you.

Operator, Operator

Your next question comes from the line of Jeffrey Stevenson with Loop Capital. Please proceed with your question.

Jeffrey Stevenson, Analyst

Hi, thanks for taking my questions and congrats on the strong quarter.

Doug Black, CEO

Thank you.

Jeffrey Stevenson, Analyst

So, were there any deferred sales in the quarter due to product shortages that will be a tailwind into the third quarter? And then also, do you think we could see an extended construction season given the labor constraints? So the fourth quarter seasonality won't be as pronounced this year?

Doug Black, CEO

Yes, just to address the first part of the question, we don't see any deferred sales. I mean the market is tight, supply chains are constrained, but we found a way to get products for our customers and so we're fighting through and don't feel like there will be any deferred benefit later. Could you repeat the second part?

John Guthrie, CFO

With regard to the fourth quarter, I think our customers are still busy now that they're working as much as they can. But if it's raining, if there's snow on the ground, they're not going to be able to work and they'll shut down. So, I don't think it will extend the season; there is strong demand, and what it's really doing is if we get into early spring, those projects will push out into 2022.

Doug Black, CEO

Yes. But we are in a constrained environment in terms of labor. So, as John mentioned, there is work that's there that the contractors just can't get to because they don't have the workers. And so, like John mentioned, that will all push into 2022. And so that does bode well for next year. It essentially extends the season into the following year.

Jeffrey Stevenson, Analyst

Okay, great. And then just following up on residential. Is there any concern about the recent deceleration in new construction? Is there a long runway, given the historical lag between landscaping and new starts?

Doug Black, CEO

There is a lag, obviously, between starts and when we actually do the landscaping, it's six months or so, but we see a strong residential market. And quite frankly, we think that those trends are here for a while. When you think about the stay-at-home situation that we've been in over the last year and a half, and now the fact that a lot of companies are going to more hybrid work arrangements where people are coming in two days and home three days, or some combination of being at work and being at home, it accentuates the need for homes and the desire to have a home and lessen the net commute to work. All those factors are working together to drive new home sales. And that's a trend that we feel is going to be here, not just this year, but on into next year and possibly beyond. So we feel really good about the residential market, and our business is primarily residential, so that bodes well for SiteOne.

Jeffrey Stevenson, Analyst

Great, thank you.

Doug Black, CEO

Thank you.

Operator, Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Mr. Doug Black for closing remarks.

Doug Black, CEO

Thank you. And thank you again for joining us today. We appreciate your interest in SiteOne and we're very excited about our long-term opportunities for performance and growth and the potential of our company. We look forward to touching base again at the end of the third quarter.

Operator, Operator

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