ServiceMaster Reports Second-Quarter Operating Loss

By Bill Dries

The ServiceMaster Co. reported a $564 million operating loss Wednesday, Aug. 14, for the second quarter of its fiscal year, in a quarter that CEO Rob Gillette said did not meet expectations.

The Memphis-based residential and commercial services company, which includes the Terminix, TruGreen lawn care and American Home Shield brands, posted $939 million in operating revenue, a 2.4 percent decline in operating revenue from the same time last year.

Gillette, who became CEO in June, attributed most of the losses to continuing problems at TruGreen. He said the company’s other brands and divisions “performed as we expected.”


“As we’ve said, TruGreen is going through some challenges,” Gillette said in prepared remarks to analysts during a Wednesday conference call. “But it’s largely self-inflicted. Unfortunately, we did this to ourselves. Right now, we’re focused on stabilizing the business, then getting it back on a path toward growth and improved profitability.”

And TruGreen president David Alexander said that will mean changing some of the 2012 measures the company took under previous CEO Hank Mullany.

TruGreen’s problems were the first focus of Mullany’s year-and-a-half-long tenure as CEO, replacing the head of the division with the leader of the company’s more successful Terminix division on what was supposed to be a temporary assignment.

It became a permanent assignment as new systems ServiceMaster put in at TruGreen became difficult to integrate.

Alexander became TruGreen president in December.

Alexander indicated Wednesday that there are still integration issues that contributed to a 6.3 percent drop in revenue for the quarter from a year ago. Chemical expenses were up because of service delays and a cold and wet spring. That meant TruGreen had to re-treat many lawns later in the season.

“The prolonged nature of the operating systems issues have created new issues,” Alexander told analysts on the call. “And that now leads us to believe that fixing the issues will take us longer than previously expected.”

He warned analysts that the turnaround of TruGreen will continue to affect the company’s numbers for the rest of the calendar year.

He also said he has made “a number of key changes of our leadership team.”

Alexander said other measures include tiered lawn care plans to better meet customers’ particular needs.

For the quarter, TruGreen had revenue of $307.6 million, which is down 12.4 percent from a year ago. Its quarterly operating performance of $22.4 million was a 74.6 percent drop from the prior year.

The quarter demonstrated some of the continuing issues the lawn care business has faced for some time. The customer retention rate was up for the second quarter but Alexander said late in the quarter there were “unseasonably high” cancellation rates whose impact will be felt for the rest of the calendar year.