SRS Distribution Inc.

Overview Key strengths Key risks Majority of sales exposed to repair and remodeling (R&R) markets, which can counterbalance some cyclicality. Ownership by financial sponsor with a history of debt-financed dividends and acquisitions. S&P Global Ratings-adjusted EBITDA margins above 12%-13% compare favorably against other distribution peers. Narrow product focus, limited primarily to residential roofing materials. Favorable debt maturity schedule, with closest maturity in 2027. Geographic and end-market diversity limited to the U.S., with some cyclicality tied to construction cycles. Operates in a highly fragmented and competitive industry. S&P Global Ratings-adjusted debt leverage for the 12 months ended Jan. 31, 2023, was 6.1x, an improvement from 8.4x on a year-over-year basis, due to strong same-store sales growth and recent acquisition activity boosting

...While SRS Distribution Inc. reduced its debt leverage to mid-5x-6x in 2022, we expect debt leverage to remain above 6x going forward as the company faces recessionary and inflationary headwinds in 2023. S&P Global Ratings-adjusted debt leverage for the 12 months ended Jan. 31, 2023, was 6.1x, an improvement from 8.4x on a year-over-year basis, due to strong same-store sales growth and recent acquisition activity boosting EBITDA generation. However, we anticipate some headwinds after record high earnings in 2021 and 2022, with much slower sales and earnings growth in the next year. The roofing segment comprises the majority of SRS' revenue and is primarily nondiscretionary as a function of roof age and damage. However, as the market cools and R&R demand softens, pricing benefit is likely to weaken overall revenue growth. Private-equity firms Leonard Green & Partners L.P. and Berkshire Partners LLC's majority ownership of SRS remains a limiting factor to our rating. SRS has a history of operating...

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