Recent IPO SiteOne Landscape Supply (SITE) reported a strong first quarter since the May issuance. Strong organic growth in excess of 20% and acquisitions enabled the company to show 45% year-over-year revenue growth.
While this fiscal first quarter was characterized by favorable weather patterns throughout much of the United States in this seasonal business model, the company still showed solid operating leverage. Pull forward of demand from the second quarter may result in lowered near-term expectations, but that will not stop me from continuing to learn more about this terrific business model.
The distribution business model is solid. Cash flow and stable aftermarket demand smooth out earnings over time. The company's acquisition plan will accelerate revenue growth and operating leverage over time as well. The end-market is large and very fragmented. Underlying demand trends and maintenance needs allow for organic revenue growth as well. Cash flow will support the appropriately leveraged balance sheet and additional bolt-on M&A activities.
Other companies that distribute products with aftermarket or replacement aspects in large and diverse end markets have proven to be terrific long-term investments. The playbook has been written by solid companies like Watsco (WSO), Genuine Parts (GPC), Pool Corp. (POOL) and Beacon Roofing Supply (BECN).
SITE is an up and comer. There are a few others in addition to SITE, like Lawson Products (LAWS) and Essendant (ESND), which are totally under the radar screen. All three are earlier stage distribution companies with plenty of market opportunity ahead.