Acquisitions Keep Rollins' Growth Buzzing

Few things elicit feelings of disgust more than seeing bugs in your home. 

Fortunately, Rollins (ROL 0.17%) can help people avoid this unpleasant scenario. In turn, the pest control specialist is experiencing booming demand for its services, as can be seen in its strong second-quarter performance. The company reported this week. 

Rollins results: The raw numbers

Data source: Rollins Q2 2018 earnings release. 

What happened with Rollins this quarter?

Rollins saw robust growth in each of its core business segments. Residential pest control sales rose 11.6%, commercial pest control revenue increased 6%, and sales of termite and ancillary services jumped 16.9%. 

More people are turning to Rollins, Inc. to keep unwanted guests out of their homes and businesses. Image source: Getty Images.

In all, total revenue grew 10.8% to $480.5 million, with half of this increase coming from organic growth and the other half from acquisitions. 

In May, Rollins purchased Guardian Pest Control in the United Kingdom.  "Guardian was founded in 2002, and is well-recognized for its pest control services, air disease control, and hygiene services," CEO Gary Rollins said during the company's earnings call.

And on July 2, Rollins completed its purchase of Aardwolf Pestkare, its first acquisition in Singapore. "Founded in 1997, Aardwolf is a highly regarded company and known for its superior pest control and specialty services to both residential and commercial customers," Rollins said. 

Costs related to these and other recent acquisitions have weighed on Rollins' profitability, but management expects earnings to improve in future quarters once these businesses are fully integrated into Rollins' operations.

All told, pre-tax income rose 4.7% to $90.2 million. And net income -- which was boosted by a lower effective tax rate brought about by the Tax Cut and Jobs Act -- leapt 22.1% to $65.5 million, or $0.30 per share.

Looking forward

Rollins is often viewed as the acquirer of choice for businesses wishing to preserve their culture, as noted by CFO Paul Edward Northen:

We continue just to find opportunities for good quality companies that want to join the Rollins family brand, that maybe aren't necessarily looking for that biggest check and then have their company broken up. They're looking for an opportunity to be able to join the Rollins family ... to be able to continue to keep that legacy company intact and be able to continue to make improvements from there.

This helps to keep Rollins' acquisition pipeline full. And once Rollins purchases a business, it's typically able to increase its earnings power, as explained by Northen:

When we acquire a company, depending on what's already in place, we can typically pick up 4 to 5 margin points when we go through and we strip out costs that we would not need to continue to run the company, when we use our purchasing power ... when we use our vehicle leases, when we put them on our benefits. And if there is opportunity to be able to create further synergies from there, whether it's back office or whether it is their management structure, we're able to sometimes do better than that. But we're able to use our tools typically to be able to make them better.

As such, Rollins' growth-through-acquisition strategy should continue to create value for investors in the years ahead.