Rollins NYSE: ROL reported third-quarter revenue growth that fell short of management’s expectations as changes in online search behavior continued to pressure residential customer acquisition. The pest-control company lowered its full-year organic-growth outlook and said it is adapting its digital marketing strategy to a customer-discovery environment increasingly shaped by artificial intelligence and large language models.
President and Chief Executive Officer Jerry Gahlhoff said AI-driven search is changing how consumers find pest-control providers. Rather than producing relatively consistent results through traditional search engines, LLM platforms can recommend different providers based on the platform, market and even the date of a search, he said.
“The result is a more fragmented, variable, and dynamic customer discovery environment,” Gahlhoff said. He added that Rollins has not yet reached stabilization in customer acquisition, although the company saw some early signs of progress late in the quarter.
Revenue Growth Slows as Residential Lead Flow Weakens
Total third-quarter revenue increased 6.2%, including 4.4% organic growth, according to Executive Vice President and Chief Financial Officer Will Harkins. Residential revenue rose 4.9%, commercial pest-control revenue increased 7.7%, and termite and ancillary revenue grew 6.5%.
Organic growth was 2.3% in residential, 6.6% in commercial and 5.3% in termite and ancillary services. Management attributed the weaker residential performance primarily to lower digital lead flow. Termite and ancillary results also were affected by fewer new residential customers entering the cross-selling pipeline, as well as staffing and capacity constraints in certain markets.
Gahlhoff said the company’s recurring residential customer base remained healthy, with customer counts continuing to grow and retention remaining strong. He characterized the issue as one of customer discovery and acquisition rather than weakening underlying demand for pest-control services.
Brands that rely more heavily on relationship-driven channels, including direct sales, door-to-door marketing and home-builder partnerships, outperformed the broader company, according to Gahlhoff. He cited HomeTeam and Fox as examples, saying their door-to-door sales forces helped produce growth well above the overall company level. Fox delivered double-digit growth, he said during the question-and-answer session.
Commercial softness was concentrated in non-Orkin brands and reflected timing of certain one-time fumigation work, management said. Orkin’s commercial business, meanwhile, grew more than 8%, according to Gahlhoff.
Margins Pressured by Insurance and Fleet Costs
Third-quarter gross margin was 53.5%, down 90 basis points from a year earlier. Higher insurance and claims costs accounted for 100 basis points of deleverage, while fleet costs contributed another 40 basis points of pressure, Harkins said. Fuel-related costs and lower gains on vehicle sales also affected results.
Employee expenses improved by 30 basis points as Rollins aligned staffing with business volumes following lower second-quarter volumes. Materials and supplies provided an additional 10 basis points of leverage.
GAAP operating income was $223 million, down 1% from the prior-year quarter. Adjusted operating income declined 0.6% to $231 million, while adjusted EBITDA decreased 0.7% to $257 million. Adjusted EBITDA margin was 23.5%.
GAAP net income totaled $158 million, or $0.33 per share. Adjusted net income was $163 million, or $0.34 per share, down 2.9% year over year. The company recorded approximately $7.3 million in pre-tax acquisition-related and other non-GAAP adjustments during the quarter.
Harkins said Rollins expects to remain positive on price versus cost for the year. The company continues to view itself as a CPI-plus pricing business, generally expecting pricing in the 2%-3% or 3%-4% range across its portfolio, though that pricing is weighted more toward commercial operations than residential services.
Company Lowers 2026 Organic-Growth Outlook
Rollins now expects 2026 organic revenue growth of 4% to 6%, with incremental margins ranging from slightly positive to 10%. The company previously provided an outlook centered on 6% organic growth.
Harkins said the midpoint of the revised range assumes lead volumes remain below prior-year levels but stabilize at third-quarter levels. The low end assumes additional deterioration in lead trends, while the high end assumes meaningful improvement. The company noted that November and December are seasonally lower-volume months for the short-cycle residential business and can be more sensitive to demand shifts and weather disruptions.
The company maintained its expectation for 2% to 3% growth from acquisitions and free-cash-flow conversion above 100% for the year. Management said it would not provide 2027 commentary until releasing fourth-quarter and full-year results.
Rollins generated $242 million in operating cash flow and $235 million in free cash flow during the quarter. Results included a $63 million tax refund related to the company’s tax-credit planning strategy. Excluding that benefit, free-cash-flow conversion would have been 109%, Harkins said.
During the quarter, the company completed seven acquisitions totaling $27 million, paid $87 million in dividends and repurchased $120 million of shares. Rollins also announced a 10% increase in its quarterly cash dividend, which Harkins said has doubled since the beginning of 2022. Its leverage ratio stood at 1x at quarter-end.
Digital Strategy Focuses on Visibility, Value and Testing
Management outlined three priorities for improving residential customer acquisition: strengthening visibility in traditional and AI-driven search, making it easier for customers to understand service differences and choose Rollins brands, and continually testing marketing tactics while reallocating spending toward the highest-return channels.
Gahlhoff said the company is expanding locally relevant content, enhancing local business listings and reviews, improving pricing transparency, and emphasizing attributes including same-day and next-day availability. Rollins has also begun using paid advertising opportunities on AI search platforms, including ChatGPT and Google Gemini.
He said one quick adjustment involved adding greater pricing transparency to Orkin’s digital content. Previously, potential customers were generally encouraged to engage through web leads or the call center for pricing discussions. Providing price ranges improved how the brand appeared in LLM-generated results, he said.
Management emphasized that the strategy is not simply to spend more on marketing. Harkins said the company intends to direct investment toward channels and tactics that produce qualified leads and stronger returns. Gahlhoff added that Rollins is balancing marketing investment with efforts to align costs to current demand and protect profitability.
Despite the near-term disruption, management reiterated its belief that the company can eventually return to the 7%-8% organic-growth framework and achieve 30%-35% incremental margins over time. Gahlhoff said reaching that growth profile will require healthy performance across residential, commercial, and termite and ancillary operations.
About Rollins (NYSE:ROL)
Rollins, Inc is a provider of pest and termite control services for residential and commercial customers. The company offers protection against common pests such as ants, cockroaches, rodents, termites, mosquitoes and bedbugs, along with wildlife control and other specialty services.
Rollins serves customers through a portfolio of regional and international brands, including Orkin, the company's best-known pest control business; HomeTeam Pest Defense; Western Pest Services; Critter Control; and other local and specialized operations.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
Before you consider Rollins, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Rollins wasn't on the list.
While Rollins currently has a Hold rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
With the proliferation of data centers and electric vehicles, the electric grid will only get more strained. Download this report to learn how energy stocks can play a role in your portfolio as the global demand for energy continues to grow.
Get This Free Report
Continue following MarketBeat
Add MarketBeat as your preferred source on Google to see our latest stories in your feed.
