Rollins, Inc. Weathers the Storm

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Rollins (NYSE: ROL) reported third-quarter financial results on Oct. 25.

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Flood conditions in multiple states forced Rollins to temporarily close more than 50 of its branches, but the resulting damage may lead to even greater demand for the company's pest management services in the quarters ahead.

Rollins results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$450.442 million

$423.994 million

6.2%

Net Income

$51.430 million

$49.651 million

3.6%

Earnings per share

$0.24

$0.23

4.3%

What happened with Rollins this quarter?

Revenue rose 6.2% year over year to $450.4 million, with 3.9% coming from pricing and organic growth, and the remaining 2.3% from acquisitions.

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Rollins saw broad-based growth across its business lines; residential pest control revenue rose 6.1%, commercial pest control sales grew 4.9%, and termite revenue jumped 10.1%.

However, Rollins' results were dented by recent storms, as explained by CEO Gary Rollins during a conference call with analysts:

We were disappointed ... with the impact to profitability that Hurricane Harvey had on several of the company's regions: Southwest and North Texas, South Central Commercial, Oklahoma, Louisiana, and Mississippi. These areas were negatively impacted by pre-hurricane preparation, flood conditions, closed branches, and our inability to service many of our customers. ... Hurricane Irma followed at the end of August with a similar effect in Florida, Georgia, Alabama, Mississippi, and Louisiana.

All told, net income increased 3.6% to $51.4 million, and earnings per share increased 4.3% to $0.24.

Looking forward

While these storms were a major headwind to Rollins' business in the third quarter, they're also leading to some new opportunities, as noted by COO John Wilson:

Most of our locations in Texas, Florida and other areas in the Southeast are back up and running normally. All of these locations are finding other ways to support customers based on what their particular needs may be. In some cases, we are providing moisture remediation services to homes with serious flood damage. For others, we will be reapplying termite protective barriers due to flooding. And for many others, we're providing mosquito services in the areas primarily where standing water exists.

CFO Paul Northen added:

Many of you have asked about the impact of severe weather on pest population as we move forward in time. Coincidently, we recently had a meeting with Dr. Eric Benson, Professor of Entomology at Clemson University, who is renowned for his study of ants. Dr. Benson shared that following Hurricane Hugo in 1989, there was a significant increase later in the ant population. He surmised that their breeding was enhanced due to trees that have come down across the state.

Additionally, many other pests have new moisture-laden areas that create prime environments for pest population expansion.

Finally, our Critter Control and crew tech people advised that when areas are severely storm-disrupted, the natural wildlife often are forced to move to different areas, which sometimes include where people live and work.

Thus, recent (and future) storms appear likely to increase longer-term demand for Rollins' pest control services.

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