With its historically weakest first quarter behind it, home, lawn, and wood-destroying insect warrantor ServiceMaster (NYSE:SVM) is all set to report its historically strongest second-quarter earnings numbers tomorrow morning. Need some clues on how the company's doing?

What analysts say:

  • Buy, sell, or waffle? Seven analysts still follow ServiceMaster. Three rate it a buy, three a hold, and one a sell.
  • Revenues. Analysts again expect to hear that sales declined year over year, this time by 12%, for total revenues of $1.03 billion.
  • Earnings. They expect to see profits fall 7% to $0.25 per share.

What management says:
The big news at ServiceMaster this quarter: We've got a new boss. Effective June 30, interim Chairman and CEO J. Patrick Spainhour had the "interim" removed from his name and became the new head of the company. Spainhour doesn't have a whole lot of experience with ServiceMaster, having served as a director only since July of last year. But as an executive, he brings a wealth of experience to the company, having occupied the CEO chair at Ann Taylor (NYSE:ANN) for nearly a decade before moving to ServiceMaster. And how did AnnTaylor perform during his tenure? Not bad -- from January 1996 to his departure in July 2005, the stock quintupled in value.

What management does:
Speaking of the '90s, ServiceMaster's stock today trades for about the same price it was fetching in May 1997. Looks like Spainhour has the opportunity to put another turnaround feather in his cap as he takes the helm here.

Fortunately, he has the advantage of working with a business that is relatively stable. Although you will note that net margins suffered a steep decline in the table below, that's just a result of the firm's December 2004 tax credit no longer inflating the rolling tally of net profits. A better indication of how the firm is doing is the fact that gross margins sit a bit higher now than where they were 18 months ago. The only real difficulty I see is in operations, where margins have been sliding for four quarters straight -- and operations are exactly where a turnaround pro can do the most good.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

37.4

39.1

39.2

39

37.9

38

Op.

10.6

10.9

11.1

11

10.5

10.5

Net

10.8

11.3

11.3

11.4

6.1

5.3

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Mathew Emmert, the head honcho over at Motley Fool Income Investor -- and the mind behind ServiceMaster's addition to the portfolio -- feels very confident about the company's prospects. In his recent monthly review of his picks' performance, Mathew noted that the stock's price had declined since CEO Jonathan Ward became ex-CEO Jonathan Ward. But that just gets Mathew more excited, because he hasn't been thrilled with ServiceMaster's top management for some time.

Like me, Mathew believes that ServiceMaster's primary problem is its abysmal record of customer service; he also agrees that this is "largely an execution problem," and one that a good manager can fix. Mathew cautions Income Investor subscribers that Spainhour's efforts to improve customer service and shake up a customer-unfriendly management structure could cost the firm some "short-term profits." But he argues that, if successful, Spainhour's reforms could turn this stock into "a double." I agree.

Competitors:

  • Ecolab (NYSE:ECL)
  • Home Solutions (AMEX:HOM)
  • Lennox International (NYSE:LII)
  • Rollins (NYSE:ROL)
  • Scotts Miracle-Gro (NYSE:SMG)

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Fool contributor Rich Smith does not own shares of any company named above.