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Pest control company Rollins (NYSE:ROL) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 8.7% year on year to $891.9 million. It made a non-GAAP profit of $0.27 per share, improving from its profit of $0.23 per share in the same quarter last year.
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Rollins (ROL) Q2 CY2024 Highlights:
- Revenue: $891.9 million vs analyst estimates of $894.7 million (small miss)
- Adjusted EBITDA: $210.1 million vs analyst estimates of $204.0 million (3.0% beat)
- EPS (non-GAAP): $0.27 vs analyst expectations of $0.27 (in line)
- Gross Margin (GAAP): 54%, up from 53.2% in the same quarter last year
- Free Cash Flow of $136.4 million, up 13.4% from the previous quarter
- Market Capitalization: $24.19 billion
Operating under multiple brands like Orkin and HomeTeam Pest Defense, Rollins (NYSE:ROL) provides pest and wildlife control services to residential and commercial customers.
Facility ServicesMany facility services are non-discretionary (office building bathrooms need to be cleaned), recurring, and performed through contracts. This makes for more predictable and stickier revenue streams. However, COVID changed the game regarding commercial real estate, and office vacancies remain high as hybrid work seems here to stay. This is a headwind for demand, and facility services companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact commercial construction projects that drive incremental demand for these companies’ services.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Thankfully, Rollins's 11.4% annualized revenue growth over the last five years was impressive. This is a great starting point for our analysis because it shows Rollins's offerings resonate with customers.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Rollins's annualized revenue growth of 12.5% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
This quarter, Rollins grew its revenue by 8.7% year on year, and its $891.9 million of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 8.1% over the next 12 months.
Operating Margin Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Rollins has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.1%. This isn't surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Rollins's annual operating margin rose by 3.6 percentage points over the last five years, showing its efficiency has improved.
This quarter, Rollins generated an operating profit margin of 20.4%, up 1.6 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with its general expenses like sales, marketing, and administrative overhead.
EPS We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Rollins's EPS grew at a spectacular 15.3% compounded annual growth rate over the last five years, higher than its 11.4% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into the nuances of Rollins's earnings can give us a better understanding of its performance. As we mentioned earlier, Rollins's operating margin expanded by 3.6 percentage points over the last five years. On top of that, its share count shrank by 1.4%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Rollins, its two-year annual EPS growth of 17.8% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, Rollins reported EPS at $0.27, up from $0.23 in the same quarter last year. This print beat analysts' estimates by 1.7%. Over the next 12 months, Wall Street expects Rollins to grow its earnings. Analysts are projecting its EPS of $0.96 in the last year to climb by 11.1% to $1.06.
Key Takeaways from Rollins's Q2 Results Despite roughly in line revenue, adjusted EBITDA beat by a healthy amount. Management commentary was positive, with the CEO stating that "Demand for our services remains strong and our pipeline for acquisitions is robust." The stock remained flat at $50 immediately after reporting.
