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VOL. 128 | NO. 95 | Wednesday, May 15, 2013

TruGreen Sags ServiceMaster Earnings

By Bill Dries

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The ServiceMaster Co. saw operating revenue and operating income decline during the first three months of 2013.

The Memphis-based commercial and residential service provider and franchiser reported a 7.1 percent drop in operating revenue compared to the first quarter of 2012 and an 83.2 percent operating income decrease from a year ago.

The earnings call with analysts from the company’s Memphis headquarters Tuesday, May 14, was the first for interim CEO John Krenicki Jr.

Krenicki termed the first quarter results “disappointing” and attributed much of the performance to the TruGreen lawn care division of ServiceMaster. He called the problems “self-inflicted wounds.”

ServiceMaster reported operating revenue of $608 million for the first quarter of 2013 and operating income of $20 million for the same period.

Krenicki, who assumed the interim position April 13 following the resignation of CEO Hank Mullany, is the chairman of ServiceMaster Global Holdings Inc., the parent company of ServiceMaster and a senior partner of the private equity firm that bought ServiceMaster in 2007.

Mullany struggled for two years with ServiceMaster’s TruGreen lawn care business.

He began his tenure as CEO in March 2011 with a new head for the TruGreen division in an attempt to transfer practices from the Terminix division to TruGreen and an overhaul of sales strategies.

Nevertheless, at the end of 2012, ServiceMaster as a whole reported an unaudited operating loss of $532.8 million on operating revenue of $3.1 billion.

For the last quarter of 2012, operating revenue for ServiceMaster grew 5.2 percent when TruGreen’s results were separated out.

“The path forward for us starts with putting our customers first, executing and implementing the turnaround agenda at TruGreen,” Krenicki said in a written statement before the earnings call.

During the call, Krenicki told analysts, “We will fix TruGreen and make ServiceMaster a better company at the same time. TruGreen is a painful lesson for all of us and is not to be repeated.”

David Alexander, the president of TruGreen since December, told analysts the problem with TruGreen has been “a product offering that wasn’t getting the job done.”

He noted that at the end of 2012, TruGreen’s customer base was 10 percent lower than at the start of the year as Mullany and others began a turnaround plan.

“We move from an ‘a la carte’ approach to a ‘one-size-fits-all’ approach,” Alexander said of the change in lawn care plans offered customers. “The result was a significant drop in sales.”

TruGreen also undertook a change in its operating system including routing and scheduling that was “significantly more difficult than the company envisioned,” he said.

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