ServiceMaster Second Quarter Net Income Down Drastically, Revenues Up Slightly

The company reported revenues of $1.65 billion, which were up 4 percent compared to the same quarter last year, after adjusting for divested operations in the prior period. On a reported basis, revenues were higher by 2 percent compared with $1.61 billion in the second quarter of 2000.

For the six months ended June 30, 2001, revenues were $2.98 billion, up 1 percent over the same 2000 period. After adjusting for divested operations in the prior period, revenues increased by 4 percent.

Additionally, the company posted six-month net income of $80 million with earnings per share of $.27 compared with net income of $102 million and earnings per share of $.33 in 2000.

TRUGREEN DIVISION TROUBLES CONTINUE. ServiceMaster’s results in the second quarter reflected strong growth in operating earnings in the Terminix and Home Maintenance and Improvement segments, which were offset primarily by lower earnings in the TruGreen and Other Operations segments.

"We are disappointed with the results of the second quarter and how they affect our view of the full year results," said Jon Ward, ServiceMaster president and CEO. "In the quarter, we also began to see indications that a slowing economy is affecting certain offerings within our businesses. In TruGreen, slower growth in the residential lawn care business and unprofitable contracts in the landscaping construction business continue to put pressure on results. Our leadership team has taken immediate action in response to these pressures which include measures to control costs, reduce overhead and improve labor productivity."

Ward also noted that challenges in the company’s TruGreen segment and economic concerns have prompted ServiceMaster to reduce its outlook for 2001 to be in the range of $.51 to $.55 earnings per share.

The TruGreen segment reported revenues of $475 million for the second quarter of 2001, up 1 percent from $469 million reported in 2000. The segment reported operating income in the second quarter of $48 million compared with $59 million in the prior year. For the first half of 2001 TruGreen reported revenues of $733 million, consistent with the $732 million reported in 2000. Operating income was $65 million compared with $91 million in the prior year.

Lawn care revenues were up over last year, reflecting the realization of price increases, growth in ancillary services and the delay of first quarter production into the second quarter. However, the company said higher labor costs and overhead - in place to support higher expected revenues - caused significant margin pressure on the segment's lawn care operations. The decreased effectiveness of telemarketing, combined with the softening economy, also compounded the issue.

ServiceMaster said landscaping revenues were down modestly as a result of repositioning the businesses portfolio to increase its concentration on more predictable maintenance services and less on construction services. The company completed the implementation of a project management system in the second quarter, which resulted in an expense to accrue for estimated losses on many construction contracts.