Wall Street wasn't amused when home warrantor, termite zapper, and grass fertilizer ServiceMaster (NYSE:SVM) missed earnings estimates back in February. Can this corporate handyman regain the Street's graces when it reports Q1 2006 earnings news? Tune in Monday morning to find out.
What analysts say:
- Buy, sell, or waffle? Seven analysts follow ServiceMaster, with four rating it a buy, two a hold, and one a sell.
- Revenues. Analysts believe that Q1 sales declined 15% versus last year, to $666.2 million.
- Earnings. Profits are expected to come in flat year over year at $0.04 per share.
What management says:
ServiceMaster recently gave an investor presentation hosted by investment advisor Raymond James (NYSE:RJF). In it, the company led off with the dominant theme of this business: It has few credible competitors in a home services industry that is fragmented in the extreme. As such, ServiceMaster can grow and profit by utilizing the advantages of scale in competing with smaller rivals (i.e., the Wal-Mart business plan). In doing so, and until a credible competitor emerges, ServiceMaster should be able to continue gaining market share and further strengthening its position. In the process, ServiceMaster aims to grow its revenues in the mid- to high-single digits and achieve profits growth in the mid-teens.
What management does:
So far, so good. Over the last 18 months, we've watched ServiceMaster's gross and operating margins continue to climb. And don't be fooled by the apparent slumping in net profit. That's due to a quirk of looking at trailing-12-month results: An event in one quarter can affect the totals in the next three quarters. Thus, the higher-than-normal net profits seen in the December 2004 through September 2005 quarters are the result of a one-time, $141 million tax credit booked in December 2004 -- which fell off the other end of the trailing-12-month tally last quarter.
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
32.1 |
37.4 |
33 |
33.2 |
33.1 |
37.9 |
|
Op. |
8.7 |
10.6 |
8.8 |
9 |
9 |
10.5 |
|
Net |
4.7 |
10.8 |
8.7 |
8.8 |
9 |
6.1 |
One Fool says:
In an industry as fragmented as ServiceMaster's, the company's market share stats are impressive in the extreme. The company owns 37% of the nation's home warranty business, better than 20% of lawn care and termite control, and 10% of maid service.
The kind of economies of scale that these numbers enable makes ServiceMaster's goal of growing its business at twice the rate of its industry sound entirely credible. And yet, according to Yahoo! Finance, the analysts following ServiceMaster have the company pegged for 12% annual profits growth over the next five years -- 255 basis points lower than what's projected for the industry. Does this mean I expect ServiceMaster to grow at twice the industry's 14.55% projected rate? Hardly. On the contrary, I think the industry's growth rate may be a bit overoptimistic. But I certainly expect that, however fast the industry grows, ServiceMaster, as the dominant company in this industry, will beat it soundly.
Competitors:
- Ecolab (NYSE:ECL)
- Home Solutions (AMEX:HOM)
- Lennox International (NYSE:LII)
- Rollins (NYSE:ROL)
- Scotts Miracle-Gro (NYSE:SMG)
ServiceMaster is a Motley Fool Income Investor recommendation. To discover more promising stocks with dynamic dividends, sign up today for a free 30-day guest pass .
Fool contributor Rich Smith does not own shares of any company named above.
