Pest control company Rollins (NYSE: ROL) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 9% year on year to $916.3 million. Its non-GAAP profit of $0.29 per share was 3.8% below analysts’ consensus estimates.

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Company Overview

Operating under multiple brands like Orkin and HomeTeam Pest Defense, Rollins (NYSE: ROL) provides pest and wildlife control services to residential and commercial customers.

Facility Services

Many facility services are non-discretionary (office building bathrooms need to be cleaned), recurring, and performed through contracts. This makes for more predictable and stickier revenue streams. However, COVID changed the game regarding commercial real estate, and office vacancies remain high as hybrid work seems here to stay. This is a headwind for demand, and facility services companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact commercial construction projects that drive incremental demand for these companies’ services.

Sales Growth

Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Luckily, Rollins’s sales grew at an impressive 11.1% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows Rollins’s offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Rollins’s annualized revenue growth of 12.1% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.

This quarter, Rollins grew its revenue by 9% year on year, and its $916.3 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 7.6% over the next 12 months, a deceleration versus the last two years. This projection is still above the sector average and indicates the market believes is factoring in some success for its newer products and services.

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Operating Margin

Rollins has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Rollins’s annual operating margin rose by 3.1 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, Rollins generated an operating profit margin of 20.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.

Rollins’s EPS grew at a spectacular 15.5% compounded annual growth rate over the last five years, higher than its 11.1% annualized revenue growth. This tells us the company became more profitable as it expanded.

We can take a deeper look into Rollins’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Rollins’s operating margin was flat this quarter but expanded by 3.1 percentage points over the last five years. On top of that, its share count shrank by 1.4%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Rollins, its two-year annual EPS growth of 16.3% is similar to its five-year trend, implying strong and stable earnings power.

In Q3, Rollins reported EPS at $0.29, up from $0.28 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Rollins’s full-year EPS of $0.98 to grow by 12.3%.

Key Takeaways from Rollins’s Q3 Results

It was good to see Rollins beat analysts’ revenue expectations this quarter. On the other hand, its EPS missed and its EBITDA fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 5.2% to $47.15 immediately following the results.

The latest quarter from Rollins’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price.We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.