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Tax Reform Boosts Rollins Earnings

By Joe Tenebruso – Apr 27, 2018 at 11:24AM

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The bug slayer is a big beneficiary of the Tax Cuts and Jobs Act.

Rollins (ROL -1.31%) reported first-quarter financial results on April 25. With all of its core business segments enjoying solid growth, the pest control specialist is reinvesting part of its tax savings into employee-retention-boosting initiatives, which management believes will drive further profit gains in the coming years.

Rollins results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Revenue

$408.7 million

$375.2 million

8.9%

Net income

$48.5 million

$40.3 million

20.5%

Earnings per share

$0.22

$0.18

22.2%

Data source: Rollins Q1 2018 earnings press release.

What happened with Rollins this quarter?

Rollins enjoyed broad-based revenue growth, with commercial pest control, residential pest control, and termite and ancillary services up 5.6%, 8.4%, and 16.2%, respectively. In all, total revenue grew 8.9% to $408.7 million, with 4.2% coming from acquisitions and 4.7% coming from price hikes and organic growth.

During a conference call with analysts, CEO Gary Rollins highlighted how Rollins' international expansion is helping to drive these results:

During the quarter, we announced the addition of four international franchises in South America, Europe, the Middle East, and Latin America. All of these locations will offer commercial and residential pest control as well as termite services where applicable. The Orkin brand is now represented in 53 countries with 83 international franchises.

Gross margin held steady at 49.6%, as improved operational efficiencies offset higher employee benefit and fuel costs. Meanwhile, selling, general, and administrative expenses inched up to 30.9% of revenue from 30.7% in the year-ago quarter, mainly due to higher acquisition-related expenses.

All told, net income -- which was boosted by a lower effective tax rate brought about by recent tax law changes -- jumped 20.5% to $48.5 million, or $0.22 per share.

A sign displaying the words tax cut

Lower taxes equal more profits for Rollins and its investors. Image source: Getty Images.

Looking forward

Rollins is also reinvesting some of its savings from the Tax Cuts and Jobs Act into strengthening its employee benefits. The company is issuing stock grants to its employees and increasing its 401(K) match, paid time off, and educational scholarships.

"Though we have long recognized that our employees are our most important asset, we wanted to do something that would have a longer-term effect for them and their families," COO John Wilson said. "We believe our benefit improvements realize that goal."

But in addition to these altruistic reasons, Rollins expects these investments to pay dividends in the years ahead.

"Our team is off to a good start and are executing our key initiatives that will make contributions throughout the year," CEO Gary Rollins said in a press release. "We are enthused about our benefit enhancements that should improve employee retention and recruiting."

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

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