Q2 Earnings Outperformers: Rollins (NYSE:ROL) And The Rest Of The Environmental and Facilities Services Stocks
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As the Q2 earnings season comes to a close, it’s time to take stock of this quarter’s best and worst performers in the environmental and facilities services industry, including Rollins (NYSE:ROL) and its peers.
Many environmental and facility services are non-discretionary (sports stadiums need to be cleaned after events), recurring, and performed through longer-term contracts. This makes for more predictable and stickier revenue streams. Additionally, there has been an increasing focus on emissions and water conservation over the last decade, driving innovation in the sector and demand for new services. Despite these tailwinds, environmental and facility services companies are still at the whim of economic cycles. Interest rates, for example, can greatly impact commercial construction projects that drive incremental demand for these services.
The 13 environmental and facilities services stocks we track reported a slower Q2. As a group, revenues were in line with analysts’ consensus estimates while next quarter’s revenue guidance was 2% below.
After much suspense, the Federal Reserve cut its policy rate by 50bps (half a percent) in September 2024. This marks the central bank’s first easing of monetary policy since 2020 and the end of its most pointed inflation-busting campaign since the 1980s. Inflation had begun to run hot in 2021 post-COVID due to a confluence of factors such as supply chain disruptions, labor shortages, and stimulus spending. While CPI (inflation) readings have been supportive lately, employment measures have prompted some concern. Going forward, the markets will debate whether this rate cut (and more potential ones in 2024 and 2025) is perfect timing to support the economy or a bit too late for a macro that has already cooled too much.
In light of this news, environmental and facilities services stocks have held steady with share prices up 1.7% on average since the latest earnings results.
Rollins (NYSE:ROL)
Operating under multiple brands like Orkin and HomeTeam Pest Defense, Rollins (NYSE:ROL) provides pest and wildlife control services to residential and commercial customers.
Rollins reported revenues of $891.9 million, up 8.7% year on year. This print was in line with analysts’ expectations, but overall, it was a slower quarter for the company with a miss of analysts’ organic revenue estimates.
"Our team delivered a strong second quarter with organic growth of 7.7 percent and an improving margin profile," said Jerry Gahlhoff, Jr., President and CEO.
Unsurprisingly, the stock is down 1.3% since reporting and currently trades at $49.30.