DOWNERS GROVE, Ill. – The ServiceMaster Co. today announced fourth-quarter 2004 revenues of $859 million, a 7-percent increase compared to the prior year. Fourth-quarter earnings per share from continuing operations were $.57. Excluding the one-time benefit of $.49 resulting from the company's previously announced agreement with the IRS, earnings per share from continuing operations were $.08, comparable to 2003. Strong growth in operating income was offset by timing differences in investment income and a higher effective tax rate.
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For the full year, revenue of $3.8 billion was up 5 percent over 2003. Earnings per share from continuing operations were $1.08 in 2004, compared to a 75-cent loss in 2003. Excluding the aforementioned tax benefit in 2004 and the non-cash impairment charge of -$1.30 per share reported in the third quarter of 2003, earnings per share from continuing operations were $.59 and $.54, respectively, a 9-percent increase.
"In 2004 we maintained our leadership position by continuing our strategy of transforming the experience of the home and business owner,” said Jonathan Ward, chairman and chief executive officer of ServiceMaster. “Our earnings growth from continuing operations in 2004 indicate that we can pursue this strategy while we simultaneously adapt to new trends in the marketplace, manage our costs and strengthen the company by adding new capabilities. We have shown that we can create new momentum for our brands. Now we're looking for new ways to expand our horizons and gain additional customers."
CASH FLOW. Net cash flow provided from operating activities for the full year was $368 million, compared to $284 million in the previous year, again substantially exceeding comparable net income. This significant improvement reflects higher earnings and a decrease in the use of working capital, primarily due to the relative impact of incentive compensation accruals and payments. Also contributing to the improvement was a favorable timing difference in tax payments of approximately $25 million resulting from the IRS agreement. As previously disclosed, including the fourth-quarter benefit mentioned above, the IRS agreement is expected to result in an aggregate net cash outflow by the end of 2005 of approximately $63 million. Of that amount, approximately $57 million is a timing difference that will be recovered through incremental tax savings over the ensuing 11 years.
The company completed approximately $63 million in share repurchases in 2004 with approximately $8 million occurring in the fourth quarter. Total debt on Dec. 31, 2004 was $805 million, slightly below the level reported at Dec. 31, 2003.
"We continue to expect revenue growth to be in the mid- to high-single-digit range in 2005 and that earnings per share will grow somewhat faster than revenues,” Ward said. “In addition, we expect comparable cash from operations to continue to increase and substantially exceed net income.
“Throughout 2005, we will maintain a strong focus on top-line sales, increased retention, pricing discipline, and the delivery of a consistently satisfying service experience,” he continued. “During our off-season first quarter, we will make incremental investments in salespeople and programs, which we expect will contribute to stronger sales and profits in subsequent quarters of the year."
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TRUGREEN. ServiceMaster’s TruGreen segment reported full year revenues of $1.4 billion, up 5 percent compared to 2003. Operating income for the year was $171 million compared to a loss of $34 million in 2003. Excluding the 2003 impairment charge, operating income was $155 million.
For the fourth quarter of 2004, segment revenue was $303 million, up 4 percent compared with the prior year. Operating income was $28 million compared with $24 million in the prior year, a 19-percent increase.
Revenue in the lawn care unit increased 8 percent for the year. This reflects an 8 percent increase in customer counts, resulting from improved retention rates and the impact of the second-quarter Canadian acquisition, as well as a strong increase in ancillary revenue. A successful launch of its neighborhood selling campaign and other direct marketing efforts substantially offset a decrease in telemarketing sales attributed to new restrictions. Operating income increased $14 million in the year, resulting from higher revenue and a $4 million pre-tax gain from the sale of a support facility, partially offset by increased fuel and chemical costs and a much higher level of incentive compensation.
In the fourth quarter, revenue in the lawn care unit increased 7 percent, reflecting higher customer counts and an increase in ancillary revenues. Operating income increased 5 percent, or $1 million, resulting from higher revenue, partially offset by a higher level of incentive compensation, fuel and factor costs. Additionally, the unit benefited from a lower level of materials expense resulting from a previously disclosed change in the estimated allocation of annual fertilizer and weed control costs among interim periods. This change did not have any net impact on full year results.
Revenue in the commercial landscaping unit was flat for the year. Strong increases in enhancement sales and consistent levels of contract maintenance revenue were offset by weather-related declines in snow removal and the effects of branch consolidations. Revenue increased 2 percent before the effects of consolidations. Excluding the 2003 impairment charge, operating income improved by $2 million, reflecting a stronger mix of higher margin enhancement revenues and an improvement in materials expense, partially offset by higher fuel and incentive compensation costs.
Fourth-quarter landscaping revenue was down 1 percent, as the full year trends cited above continued. Revenue increased by 1 percent before the effects of consolidations. Operating results improved by $3 million due to the previously described factors and the absence of branch closure costs that adversely impacted the fourth quarter of 2003.