ServiceMaster Reports First Quarter 2005 Results
biz.yahoo.com
Tuesday May 10, 8:54 am ET
DOWNERS GROVE, Ill.--(BUSINESS WIRE)--May 10, 2005--The ServiceMaster Company:
-- Retention rates and customer counts continue to improve at
TruGreen ChemLawn; Shift in timing of production to subsequent
quarters
-- Investments in sales and marketing at Terminix and American
Home Shield made to sustain and improve top-line growth:
-- Revenue growth at Terminix supported by strong growth
in unit sales
-- Continued solid growth in revenues and profits at AHS
-- Improved operating results at TruGreen LandCare
The ServiceMaster Company today announced first quarter 2005 revenues of $782 million, a 3 percent increase compared to the prior year. First quarter earnings per share from continuing operations were $.04, comparable to 2004. Increased securities gains at American Home Shield helped offset the effects of off-season sales and operating investments and unfavorable March weather.
"As we entered 2005, our Company remained focused on revenue growth, pricing, improved retention and consistently delivering a satisfied service experience to our residential and commercial customers," said Jonathan Ward, Chairman and Chief Executive Officer. "In order to enhance our ability to achieve these objectives, during the first and continuing into the second quarter, we continued to make key investments in salespeople and marketing programs. These investments combined with our technology pilots and ongoing process improvement developments should enable us to create a sustainable growth profile for our shareholders."
Review of Cash Flows and Balance Sheet
Net cash flow used for operating activities in the quarter was $148 million, compared to $16 million provided from operating activities in the previous year. This decrease in net cash flow of $164 million primarily reflects $131 million of a previously anticipated and disclosed tax payment pertaining to the 2004 IRS agreement. The Company anticipates that this payment will be partially offset by a reduction in estimated tax payments of approximately $45 million in the second half of 2005. In addition, comparability of cash flows was impacted by a higher level of incentive compensation payments in the first quarter of 2005 versus 2004 relating to previous year's performance.
Total debt on March 31, 2005 was $876 million, approximately $71 million more than the level reported at December 31, 2004. The increase in debt was the result of the previously described tax payment, net of the use of available cash, combined with normal seasonal operating needs. Additionally, in April, the Company used its revolving credit facility to pay $137 million of 8.45 percent bonds that matured.
Outlook
"We continue to expect revenue growth to be in the mid-to-high single digit range in 2005 and that earnings per share will grow somewhat faster than revenues. In addition, excluding the impact of the IRS settlement, we expect cash from operating activities to increase and substantially exceed net income," said Ward.
"Throughout the year, we expect to continue to overcome certain external factors that we do not directly control (e.g. rapidly rising fuel and health insurance costs and unfavorable weather). However, as we demonstrated in 2004, these challenges can be mitigated and in some cases used to our competitive advantage through a combination of focused cost controls, strategic initiatives, improved customer retention, and the proven ability of our employees to effectively execute in the field," concluded Ward.
Business Review by Segment
TruGreen
The TruGreen segment reported first quarter revenues of $223 million, down 1 percent compared to prior year. Operating loss for the quarter was $(8) million compared to $(3) million in the prior year.
First quarter revenues in the lawn care operations were $123 million, down 2 percent compared to 2004. Customer count growth, excluding the Canadian acquisition completed in April 2004, was 2 percent, reflecting improved retention rates, partially offset by a modest decrease in new sales. A successful expansion of its neighborhood selling efforts and other direct marketing programs substantially offset reduced telemarketing sales. The comparison of first quarter revenues was negatively impacted by late snow in several operating regions which delayed available service applications. Operating results for the quarter were approximately $9 million below prior year levels. The aforementioned production delays and the first-time absorption of $3 million of seasonal losses from the Canadian operations contributed to the lower operating results.
First quarter revenues in the commercial landscaping operations were $100 million, comparable to prior year results. Excluding the impact of underperforming branches that had been shut down in 2004, revenue growth was 3 percent, primarily reflecting a solid increase in enhancement sales and modest growth in contract maintenance revenues. These operations achieved a $5 million reduction in operating losses for the quarter compared to prior year levels. This improvement reflects higher volume and gross profit margins and the impacts of one-time branch shut-down costs incurred last year.
Terminix
Terminix reported first quarter revenues of $248 million, up 5 percent compared to the prior year. Revenues from sales of initial termite treatments were supported by a sharp increase in renewable unit sales from an expanded sales force, despite lower swarm activity from cooler seasonal temperatures. The favorable impact on revenues of this increased volume was partially offset by a shift in mix to lower priced services. Termite renewal revenue increased modestly reflecting improved pricing, partially offset by a slight decrease in customer retention. The pest control operations experienced solid growth in customers and revenues, reflecting double-digit increases in unit sales, partially offset by a decline in customer retention. Operating income for the quarter was $31 million compared to $36 million in the prior year. Operating results benefited from the increased revenues but were adversely impacted by planned incremental investments to increase the size of the sales force and to reorganize field operations, as well as a $3 million unfavorable correction of reserve levels established for termite damage claims in prior years.
American Home Shield
The American Home Shield (AHS) segment reported first quarter revenues of $111 million, up 8 percent compared to the prior year. The home warranty business experienced strong growth in its renewal and direct to consumer channels, with comparable new sales in the real estate channel. Renewal sales were supported by an overall improved customer retention rate, while consumer sales benefited from an increased level of targeted direct mail. Operating income was $14 million compared to $10 million in the prior year, primarily reflecting revenue growth and a slightly lower incident rate of claims coupled with continued favorable trending in costs per claim, partially offset by incremental investments to increase market penetration and customer retention.
American Residential Services and American Mechanical Services
The American Residential Services (ARS) and American Mechanical Services (AMS) segment reported first quarter revenues of $159 million, up 3 percent compared to the prior year. The segment experienced continued strong growth in AMS' commercial project revenues and modest gains in residential construction. Continued growth in retail channel HVAC sales, commercial plumbing and sewer line repairs were more than offset by declines in core HVAC and plumbing service calls. Overall, the seasonal operating loss of $(4) million was comparable to the prior year.
Other Operations
The Other Operations segment reported first quarter revenues of $42 million, up 9 percent compared to the prior year. The ServiceMaster Clean and Merry Maids franchise operations reported a combined increase in earned revenue of 9 percent, primarily driven by continued strong results in disaster restoration and very strong internal growth in maid service. Operating loss for the quarter was $(8) million compared with $(9) million in the prior year, primarily reflecting increased profits from the franchise businesses and lower insurance costs, offset in part by increases in costs of certain strategic investments.
Non-Operating Expense/ (Income)
Non-Operating expenses for the quarter were $8 million compared with $12 million in the prior year. A modest increase in interest expense due to higher interest rates and debt balances was more than offset by a $5 million increase in income experienced on the AHS investment portfolio. This increase included a $2.5 million favorable correction in the accounting for a specific investment at AHS.
Conference Call Details
The Company will review these results and discuss its outlook in a call at 11:00 a.m. CT on May 10, 2005. Interested parties may listen to the call at (800) 287-0836. The conference call will include Jon Ward, Chairman and Chief Executive Officer, and Ernie Mrozek, President and Chief Financial Officer. The call will be broadcast live and can be accessed at the ServiceMaster web site, www.svm.com. The call will be archived on the site for 30 days and may also be accessed for seven days at (800) 633-8284 (#21245235).
Company Overview
ServiceMaster provides outsourcing services for residential and commercial customers through a network of over 5,500 company-owned and franchised service centers and business units operating under leading brands, which include Terminix, TruGreen ChemLawn, TruGreen LandCare, ARS Service Express, Rescue Rooter, American Mechanical Services, ServiceMaster Clean, American Home Shield, AmeriSpec, Merry Maids, and Furniture Medic. As America's Service Brands for Home and Business, the core service capabilities of the Company include lawn care and landscape maintenance, termite and pest control, plumbing, heating and air conditioning services, cleaning, furniture repair and home warranty.
Business Segments
The Company is primarily comprised of five business segments: The TruGreen segment includes the lawn care operations performed under the TruGreen ChemLawn brand name and commercial landscaping services provided under the TruGreen LandCare brand name. The Terminix segment includes termite and pest control services. The American Residential Services and American Mechanical Services segment includes heating, ventilation, air conditioning, electrical and plumbing services provided under the ARS Service Express, AMS and Rescue Rooter brand names. The American Home Shield segment offers warranty contracts on home systems and appliances and home inspection services through AmeriSpec. The Other Operations segment includes the Company's franchised operations, which include ServiceMaster Clean, Merry Maids, Furniture Medic, the Company's international operations and headquarters. |
