Pest control company Rollins (NYSE:ROL) announced better-than-expected revenue in Q4 CY2024, with sales up 10.4% year on year to $832.2 million. Its non-GAAP profit of $0.23 per share was in line with analysts’ consensus estimates.
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Rollins (ROL) Q4 CY2024 Highlights:
- Revenue: $832.2 million vs analyst estimates of $819.6 million (10.4% year-on-year growth, 1.5% beat)
- Adjusted EPS: $0.23 vs analyst estimates of $0.23 (in line)
- Adjusted EBITDA: $181.2 million vs analyst estimates of $186 million (21.8% margin, 2.6% miss)
- Operating Margin: 18.1%, in line with the same quarter last year
- Free Cash Flow Margin: 22.1%, up from 18.8% in the same quarter last year
- Market Capitalization: $24.19 billion
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 sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Rollins’s 11% annualized revenue growth over the last five years was impressive. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Rollins’s annualized revenue growth of 12.1% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. 
This quarter, Rollins reported year-on-year revenue growth of 10.4%, and its $832.2 million of revenue exceeded Wall Street’s estimates by 1.5%.
Looking ahead, sell-side analysts expect revenue to grow 7.9% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is above the sector average and indicates the market 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.
Analyzing the trend in its profitability, Rollins’s operating margin rose by 2.4 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q4, Rollins generated an operating profit margin of 18.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Rollins’s EPS grew at a spectacular 16% compounded annual growth rate over the last five years, higher than its 11% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
We can take a deeper look into Rollins’s earnings to better understand the drivers of its performance. As we mentioned earlier, Rollins’s operating margin was flat this quarter but expanded by 2.4 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 shorter period to see if we are missing a change in the business.
For Rollins, its two-year annual EPS growth of 15.5% is similar to its five-year trend, implying strong and stable earnings power.
In Q4, Rollins reported EPS at $0.23, up from $0.21 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Rollins’s full-year EPS of $0.99 to grow 11.7%.
Key Takeaways from Rollins’s Q4 Results
It was encouraging to see Rollins beat analysts’ revenue expectations this quarter. On the other hand, its EBITDA missed and its EPS fell slightly short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $50 immediately following the results.
So should you invest in Rollins right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
