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ServiceMaster slates TruGreen separation

November 14, 2013 -  By

The ServiceMaster Co. unveiled plans to spin off the TruGreen business, effective Dec. 31, in the release of its unaudited third-quarter 2013 results.

“This separation should enable ServiceMaster to concentrate on growth while providing TruGreen the time and focus it needs to make the changes necessary to complete the turnaround of its business,” said Rob Gillette, ServiceMaster CEO. “Separating TruGreen from ServiceMaster should allow both companies to realize their full potential faster.”

The separation is being planned as a tax-free spin-off of TruGreen through a pro rata dividend to the stockholders of ServiceMaster Global Holdings, the  parent company of ServiceMaster. The separation is subject to closing conditions, which once completed will result in TruGreen being an independent, private company.

“We believe the most effective way to realize TruGreen’s long-term value is to have it operate as a standalone company,” said TruGreen President David Alexander. “We have the right team and the right plan, and we’re excited about the opportunity ahead of us. What we need to do now is stay focused, execute well and deliver more consistent, reliable performance over the long haul.”

Alexander told investors in a third-quarter earnings call Nov. 14 that it’s down about 300,000 customers compared to two years ago, the (Memphis) Daily News reports.

Green Industry observers aren’t surprised ServiceMaster took action considering TruGreen’s poor results, but they’re unsure what the outcome will be.

“It’s kind of hard to believe [private-equity firm Clayton Dublier & Rice is] in it for a long-term fix, but who knows?” said Ron Edmonds, principal of mergers and acquisitions consulting firm The Principium Group. “I will be very surprised if they do any significant acquisitions in the next year. What I hear them say is that will be focusing on execution, including solving their systems issues and implementing new marketing programs, especially door-to-door neighborhood marketing.”

According to ServiceMaster’s third-quarter results, TruGreen’s operating revenue increased slightly, driven by improved price realization. operating performance declined $19 million versus 2012, reflecting investments to improve customer service, combined with the impact of process inefficiencies driven, in part, by technology integration issues.

As a whole, ServiceMaster reported an operating revenue of $929 million, an increase of approximately 3 percent compared to the same period in 2012. The increase was primarily attributable to a strong performance at Terminix versus the prior year period and revenue stabilization at TruGreen.

The company reported third-quarter net income of $46 million versus a net loss of $704 million one year ago, which included goodwill and trade name impairment charges at TruGreen totaling $845 million.

Additionally, ServiceMaster reported third-quarter operating performance of $169 million, which was comparable to the same period in 2012—according to the report, the impact of higher revenue on gross profit in third-quarter 2013 was offset by higher selling expenses primarily at TruGreen.

“Our third-quarter 2013 financial results met our expectations,” Gillette said. “While the increase in revenue compared to the third quarter of 2012 was primarily attributable to the strong performance at Terminix, all of our business segments produced revenue growth versus prior year.”

Updated: 11/19/13

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LM Staff

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