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Rollins, Inc. Enjoys Broad-Based Growth

By Joe Tenebruso - Jul 28, 2017 at 3:15PM

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The Orkin Man is in high demand.

Rollins (ROL 0.74%) reported second-quarter financial results on July 26. The parent company of Orkin and other pest-management businesses posted its 45th consecutive quarter of improved revenue and earnings.

Rollins results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$433.555 million

$411.133 million

5.5%

Net Income

$53.689 million

$47.783 million

12.4%

Earnings per share

$0.25

$0.22

13.6%

Data source: Rollins Q2 2017 earnings press release.

What happened with Rollins this quarter?

Revenue grew 5.5% year over year to $433.6 million, including 0.6% from acquisitions and 4.9% in organic growth -- Rollins' highest Q2 organic growth in five years.

Rollins saw growth in all of its business lines, including residential pest control (up 5.9%), commercial pest control (up 5.1%), and the termite segment (up 6.1%).

The company continues to expand both domestically and internationally. On July 25, Rollins announced an agreement to acquire Northwest Exterminating Co., Inc. -- the 17th-largest pest control operator in the United States with reported revenue of more than $50 million in 2016. Rollins also made moves to grow its non-U.S. business, as explained by CEO Gary Rollins during a conference call with analysts:

During the quarter, we were also pleased to have expanded Orkin's presence internationally by adding six new franchises in Central America, South America, and Southeast Asia. These franchises are located in Nicaragua; Lima, Peru; Sao Paulo and Rio de Janeiro, Brazil; and in Jakarta, Indonesia. We now have 76 franchises located around the world, building our Orkin brand.

An Orkin pest control specialist speaking with a customer

The Orkin man is in high demand. Image source: Rollins Inc.

Moreover, Rollins is becoming more profitable as it expands. The company's investments in routing and scheduling technology helped gross margin improve to 52.8%, up from 52.3% in the prior-year quarter. Additionally, sales, general, and administrative expenses as a percent of revenue decreased to 29.9% from 30.8%, mainly due to lower payroll expenses. Together, these improvements helped net income before taxes rise 11.9% to $86.1 million.

All told, net income rose 12.4% to $53.7 million, and earnings per share increased 13.6% to $0.25.

Looking forward

As is typically the case, Rollins declined to offer financial guidance. CFO Eddie Northen did, however, note that the company remains on the hunt for value-creating acquisitions:

A large portion of our cash balance will be used for the Northwest acquisition, but by no means would this limit our ability or appetite to continue to pursue good-quality pest-control and wildlife companies like Northwest as we move forward. As you're probably aware, we hold $175 million line of credit and a $75 million credit sub facility that we would be willing and ready to use for the right opportunity.

Northen went on to note that privately owned businesses in the U.S. and -- increasingly -- international markets would remain an attractive hunting ground for further deals:

For many years Rollins has been considered the acquirer of choice for many family-owned companies. We feel that we are in a great position to continue to deploy capital to get the best return for our shareholders.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Rollins. The Motley Fool has a disclosure policy.

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