ROL Q1 Earnings Call: Organic Growth, Commercial Momentum, and Saela Acquisition Shape Outlook
Pest control company Rollins (NYSE:ROL) met Wall Street's revenue expectations in Q1 CY2025, with sales up 9.9% year on year to $822.5 million. Its non-GAAP profit of $0.22 per share was in line with analysts' consensus estimates.
Is now the time to buy ROL? Find out in our full research report (it's free).
Revenue: $822.5 million vs analyst estimates of $820 million (9.9% year-on-year growth, in line)
Adjusted EPS: $0.22 vs analyst estimates of $0.22 (in line)
Adjusted EBITDA: $171.9 million vs analyst estimates of $173.6 million (20.9% margin, 1% miss)
Operating Margin: 17.3%, in line with the same quarter last year
Free Cash Flow Margin: 17%, similar to the same quarter last year
Organic Revenue was up 7.4% year on year
Market Capitalization: $26.81 billion
Rollins reported first quarter results driven by broad-based growth across its service lines, with management highlighting double-digit gains in commercial pest control and the continued expansion of the termite and ancillary businesses. CEO Jerry Gahlhoff attributed the quarter's performance to increased investments in sales staffing, marketing, and operational execution, as well as early benefits from the company's multi-brand strategy. The recently closed acquisition of Saela Pest Control was also discussed as a contributor to growth and a strategic fit for Rollins' regional approach.
Looking ahead, management maintained its outlook for organic growth in the 7% to 8% range and expects the addition of Saela to lift M&A-driven growth. The leadership team emphasized resilience in the face of macroeconomic uncertainty, with CFO Kenneth Krause stating, 'We remain confident in our ability to yield a strong return on these investments in the quarters and years ahead.' Rollins expects ongoing investments in technology, personnel, and customer service to support sustainable profitability throughout the year.
Rollins' leadership focused on key contributors to first quarter performance, including M&A activity, investments in staffing and marketing, and the strength of its recurring service model. Management attributed results to operational execution and the company's ability to adapt under varying market conditions.
Saela Acquisition Impact: The Saela Pest Control acquisition was highlighted as an important addition, expanding Rollins' presence in the Pacific Northwest, Mountain West, and Midwest. Management stressed that Saela's culture and operational scale align with Rollins' multi-brand strategy, providing new avenues for customer acquisition and geographic diversification.
Commercial Division Growth: Significant resources have been dedicated to the Orkin commercial division. These investments supported double-digit recurring revenue growth in commercial pest control, though some softness was noted in one-time services like fumigation.
Recurring Revenue Model: The company's recurring base, particularly in the residential and termite segments, remained resilient. Management credited strong customer relationships and effective cross-selling as drivers of sustained organic growth, especially in higher-ticket termite ancillary services.
Operational Efficiency Initiatives: Rollins reported a 20-basis-point improvement in gross margin, citing pricing strategy, cost discipline in people and materials, and a focus on continuous improvement. These gains were partially offset by higher fleet expenses and increased spending on marketing and advertising.
Balanced Capital Allocation: The quarter included an inaugural $500 million bond offering and the establishment of a $1 billion commercial paper program, providing flexibility for future acquisitions and organic investments. Free cash flow conversion remained high, supporting ongoing dividends and capital deployment.
Management expects continued revenue and profit growth as a result of organic expansion, integration of recent acquisitions, and a focus on operational efficiency, while acknowledging potential macroeconomic headwinds.
Integration of Saela and M&A Pipeline: The addition of Saela is expected to be accretive to earnings in its first year, with further growth possible from ongoing M&A activity. Management is focused on pragmatic integration, emphasizing both operational synergies and the adoption of best practices across acquired brands.
Investment in Talent and Technology: Strategic hiring, training, and deployment of sales and technician teams remain priorities. Investments in technology, such as sales enablement tools, are designed to support productivity and enhance customer service, laying the groundwork for future margin improvement.
Macro and Cost Environment: While leadership sees the business as recession-resilient, they are monitoring fleet costs and general inflation. The company's variable cost structure and ability to adjust pricing are viewed as levers to maintain profitability if demand softens.
Tim Mulrooney (William Blair): Asked whether Rollins saw any signs of weakening demand in residential or termite services, given mixed industry feedback. Management replied demand was steady, noting improvements as the quarter progressed and no significant slowdowns observed.
Ronan Kennedy (Barclays): Inquired about the drivers of top-line growth and the resilience of each business segment during downturns. Management cited pricing strength, volume growth, and the multi-brand strategy, emphasizing flexibility and the ability to adjust costs quickly if needed.
George Tong (Goldman Sachs): Questioned the moderation in organic growth in residential and termite segments compared to the previous quarter. Management pointed to the impact of one less business day, minor currency headwinds, and the timing of one-time services as the main factors.
Jason Haas (Wells Fargo): Asked about integration synergies from the Saela acquisition and whether incremental margins would improve as investments normalize. Management explained that synergies will focus on technology and best practice sharing, and margins should improve as temporary marketing and sales investments are absorbed.
Stephanie Moore (Jefferies): Sought details on client retention strategies in a potential recession and whether Rollins could use flexible billing or service adjustments. Management highlighted the importance of customer relationships and the ability to adapt retention tactics market by market.
In the coming quarters, our analysts will monitor (1) the pace and effectiveness of Saela's integration and its impact on earnings, (2) ongoing improvements in commercial division productivity and recurring revenue growth, and (3) the company's ability to maintain gross margin gains while balancing investments in marketing and technology. The progression of additional M&A opportunities and further enhancements in employee retention will also be key indicators of execution and long-term growth potential.
Rollins currently trades at a forward P/E ratio of 48.1×. In the wake of earnings, is it a buy or sell? The answer lies in our free research report.
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