I want to thank the entire SiteOne team for their passion and commitment to making SiteOne a great place to work and for welcoming the newly acquired teams when they join the SiteOne family. It’s this stronger together culture that continues to attract our industry’s best entrepreneurs, and we are genuinely honored when they choose to have their family join ours. I am confident we can continue adding more outstanding new companies through acquisition, and drive excellent value for all our stakeholders. I will now turn the call back to Doug.
Doug Black: Thanks, Scott. I’ll wrap up on Slide 19. Our outlook for organic daily sales in the fourth quarter is that it will be similar to the third quarter, with positive sales volume more than offset by commodity price deflation. We expect customer demand to remain resilient, and we expect to continue gaining market share with our strong teams executing our commercial and operational initiatives. In terms of end markets, we expect new residential construction, which comprises 21% of our sales, to continue to be solid for the remainder of the year, with high interest rates constraining homebuying. While builders have become more bullish in terms of single-family housing starts, we will not see the benefit of this until 2024.
New commercial construction, which represents 14% of our sales, has remained solid. And based on our current customer backlogs, we expect to finish well in this market in 2023. The repair and upgrade market, which represents 29% of our sales, has also remained resilient, and we expect demand to be flat to slightly down during the fourth quarter. Lastly, we expect sales volume in the maintenance category, which represents 36% of our sales, to remain strong as contractors and end users take advantage of lower commodity prices and restore application rates from the depressed levels of last year. With this backdrop, we expect our organic daily sales to be down low single digits in the fourth quarter, driven by price deflation. For the full year 2023, we expect organic daily sales to be approximately flat.
As mentioned, we expect gross margin and adjusted EBITDA margin to be lower in the fourth quarter than the prior year period, although the year-over-year decline will be less than in the third quarter. We also expect the acquisitions completed in the third quarter to have a dilutive effect on adjusted EBITDA in the fourth quarter, given the seasonality of these companies. With reasonable future demand, we expect to resume expanding adjusted EBITDA margin in 2024 and beyond. In terms of acquisitions, as Scott mentioned, we have a strong pipeline of high-quality companies, some of which may join the SiteOne family in the remainder of 2023. Our acquisitions are performing well, and we continue to improve our ability to integrate them into our company.
With all these factors in mind, we’re lowering the top end of our guidance range, and now expect our fiscal 2023 adjusted EBITDA to be towards the low end of our updated range of $400 million to $410 million. This range does not factor any contribution from unannounced acquisitions. In closing, I would like to sincerely thank all our SiteOne associates who continue to amaze me with their passion, commitment, teamwork, and selfless service. We have a tremendous team, and it is an honor to be joined with them as we deliver increasing value for all our stakeholders. I would also like to thank our suppliers for supporting us so strongly and our customers for allowing us to be their partner. Operator, please open the line for questions.
Operator: [Operator Instructions] Our first questions come from the line of David Manthey with Baird. Please proceed with your questions.
David Manthey: Thank you. Good morning, guys. First off, John, when you were talking about the segments, you said Landscape Supplies ADS down 2%, with slightly lower price and moderating demand, which sounds like sort of an ongoing situation. And Doug, in your closing remarks, you mentioned that demand remains resilient. I know I’m splitting atoms here, but could you square those thoughts for me, what the message is here as it relates to volume demand in the fourth quarter and beyond?
John Guthrie: Well, we can say, with regards to landscaping products, we were down negative 2% on organic daily sales growth. That was slightly lower price. Price was about negative one on landscaping products, and we were about negative one on volume for the quarter.
Doug Black: Yes, in terms of the second part of your question, David, we see the fourth quarter being much like the third. We are seeing continued positive volume overall. As we mentioned, agronomic volume was very strong, kind of balancing the very deep deflation in fertilizer and seed. We’re kind of solid in landscaping products, which has less impact from price deflation. But when you put it all together, we expect volume to continue to be positive going through the fourth quarter. And then we we’re – it’s too early to call 2024, but I’d say overall, we would see it shaping up to be kind of a solid – at least a solid start in 2024. And we think the markets will – we’ll use the word resilient. We’ll continue to be resilient going forward.
David Manthey: Okay. And then – thanks for that. And second on operating expenses, that were very well managed this quarter. I think this is the first quarter in your public history where third quarter SG&A dollars were lower than second quarter SG&A dollars. You mentioned that you’ve taken steps to accomplish that. Could you give us a little detail on what those steps are that allowed that in the context of adding acquisitions and still investing for the future?
Doug Black: Right. Well, I think, there’s an adjustment from the high growth during the COVID years and the strong continued growth in 2022, to more modest growth in 2023, and obviously deflation. And so, we’ve been able to manage our teams. Our teams are very flexible and can move fast in individual markets. We’ve had markets that have been weather-affected. And so, we pulled in in the field, and also we continue to drive our initiatives, which are helping to improve our productivity from our sales force CRM, with the sales force to MobilePro, siteone.com, et cetera, right? And so, we’re going to continue to work those hard, and we’re excited about what we’re seeing. We were pleased also to be able to achieve that in the third quarter.
And I think we’ll look for more of that. And as we enter 2024, I think we’ve got an opportunity to continue to get more productive as we move forward. And obviously, as part of our long-term EBITDA margin expansion objective, we plan to work both the SG&A leverage side and the gross margin side to achieve that long-term goal. So, a lot of room for improvement over the years to come there.
David Manthey: Yes, it’s very clear. Thanks a lot, Doug. Thank you both.
Operator: Thank you. Our next questions come from the line of Ryan Merkel with William Blair. Please proceed with your questions.
Ryan Merkel: Hey, good morning. Thanks for taking the questions. I wanted to start off with the deflation. Doug, in your comments, you mentioned that you thought deflation had bottomed in September and October. Just unpack for us why you think that’s the case. And then, can you confirm that in the fourth quarter price deflation will be about 4%, same as 3Q?
Doug Black: Yes, so what we saw is price deflation accelerated as we went through kind of July, August, September, and now in October, we’ve seen a level similar to September, with a slight – the back half of October has shown a slight improvement over the first half of October. So, we see signs. The prices started dropping last year during the fourth quarter. And so, we’re starting to lap that. And so, we believe that it’s stair stepdown during the third. We believe it’ll stair step back up, yielding about the same amount of – or similar to the third quarter. And then as we go into 2024, obviously, we’ll completely lap those price decreases and things will return to normal. So, John, did you have something to add to that?
