Rollins (NYSE:ROL) reported second-quarter 2026 results that management said fell short of expectations, as slower growth in parts of its residential pest control business offset stronger performance in commercial, termite and ancillary services.
President and CEO Jerry Gahlhoff said the weakness was concentrated in brands such as Orkin that depend more heavily on consumer-initiated demand through search, digital media and inbound calls. He said the lead environment “got progressively worse” during the quarter before improving near the end of June and into early July.
Residential Demand Weighs on Growth
Rollins said total revenue increased 7.9% in the quarter, while organic growth was 5.7%. Executive Vice President and CFO Will Harkins said both measures were below the company’s expectations.
By service line, second-quarter revenue growth was positive across the portfolio:
- Residential pest control revenue increased 6.6%, with organic growth of 3.6%.
- Commercial pest control revenue increased 8.6%, with organic growth of 7.2%.
- Termite and ancillary revenue increased 10.5%, with organic growth of 8.9%.
Gahlhoff said brands that rely on relationship-based customer acquisition, including direct sales, door-to-door models and homebuilder relationships, performed better. HomeTeam posted double-digit residential growth, while Fox grew in the high teens organically during the quarter, he said.
Management said customer retention remains strong and that pricing has not created notable customer pushback. In response to an analyst question, Gahlhoff said Rollins had not seen hesitancy from customers on pricing and that retention trends did not show deterioration.
The pressure appeared more related to the top of the sales funnel, particularly one-time residential demand. Gahlhoff said certain one-time pest categories, including mosquito, residential rodent and carpenter ant calls, were down significantly at points in the quarter. He described one-time demand as negative during much of the period, while recurring residential revenue was healthier.
Management Cites Multiple Possible Causes
Gahlhoff said the company spent significant time evaluating the slowdown but does not believe there is a single explanation. He cited possible factors including pest pressure, weather patterns, consumer behavior, gas prices and affordability pressures in lower-income customer bands.
He said Rollins tested the digital search environment and adjusted digital marketing tactics but did not see major changes in volume. That led management to conclude that fewer consumers were actively searching for pest control services during part of the quarter.
Asked whether artificial intelligence search tools or large language models could be contributing to weaker digital leads, Gahlhoff said it is possible but not quantifiable. He said the company is monitoring how it appears in those channels and expects search platforms may soon begin monetizing that activity.
“Precise drivers are difficult to isolate,” Gahlhoff said. “What we do know is that customer demand patterns have been more variable to start peak season than we’ve experienced in the better part of a decade.”
Management said inbound lead flow and call center volumes improved toward the end of June and continued a positive trajectory in the first few weeks of July. In response to an analyst question, Gahlhoff said lead flow had narrowed back to levels similar to the prior year, though he emphasized that management remains cautious after seeing quick shifts earlier in the year.
Margins Pressured by Lower Volume and Costs
Rollins reported GAAP operating income of $201 million, up 1.5% from the prior year. Adjusted operating income was $210 million, up 2%. Adjusted EBITDA was $236 million, up 2.2%, representing a 21.9% margin.
Harkins said gross margin was 52.8%, down 100 basis points. Lower-than-expected volume, higher medical-related costs and fuel headwinds pressured profitability. People-related costs, including medical plan expenses and service salary deleverage, accounted for 70 basis points of pressure, while fleet costs, primarily fuel, added 20 basis points.
Fuel represented about 1.8% of sales in the quarter, and the company expects fuel costs to remain below 2% of sales for 2026. Harkins said customer response to recent price increases has been favorable and that Rollins still expects to be positive on price-cost for the year.
SG&A as a percentage of revenue rose 30 basis points year over year. Incremental selling investments and higher fleet costs each represented 10 basis points of headwind, with the balance tied to other general and administrative expenses.
Second-quarter GAAP net income was $144 million, or $0.30 per share. Adjusted net income was $152 million, or $0.32 per share, up 6.7% from a year earlier. The effective tax rate was 24.2%, compared with 26% last year, and Harkins said Rollins expects its full-year effective tax rate to come in below 25%.
Guidance Updated for 2026
Rollins revised its full-year outlook, citing first-half results and current visibility. The company now expects organic growth of at least 6% for 2026 and incremental margins of at least 10%, with margin improvement in the back half weighted toward the fourth quarter.
The company maintained its expectations for acquisitions to contribute 2% to 3% of revenue growth and for cash flow conversion to remain above 100% for the year.
Harkins said the updated 2026 outlook reflects near-term operating conditions rather than a change in the medium-term financial framework the company outlined at its May Investor Day. He said Rollins still believes the business can generate organic growth of at least 7% while delivering meaningful margin expansion over time, including incremental margins of at least 30%.
Management said operational priorities include improving customer acquisition, increasing productivity, aligning resources with demand and improving execution. Gahlhoff also noted a recent leadership change at Orkin, with Scott Weaver promoted to Chief Operating Officer of Orkin North America, overseeing residential and commercial operations in the U.S. and Canada.
Cash Flow, M&A and Capital Allocation
Rollins generated operating cash flow of $173 million and free cash flow of $166 million in the quarter. Free cash flow conversion was above 115%. Harkins said year-to-date cash flow growth has been affected by the timing of tax payments tied to the company’s tax credit planning strategy, but that those headwinds are expected to reverse later in the year, particularly in the fourth quarter.
The company completed $117 million of acquisitions in the quarter and paid $88 million in dividends. Harkins said leverage stood at 1x and that the balance sheet remains strong.
On mergers and acquisitions, Harkins said Rollins acquired Romex during the quarter, its largest acquisition in the period, and completed several other tuck-in deals. He said the M&A pipeline remains healthy and that Rollins continues to expect acquisitions to contribute 2% to 3% of revenue growth this year.
Asked about capital allocation after a stock dislocation, Harkins said the company’s strategy remains consistent: reinvest in the business, pursue M&A opportunities and return capital to shareholders. He said Rollins has made nominal share repurchases to offset dilution from stock compensation but does not currently expect a change in its capital allocation approach.
About Rollins (NYSE:ROL)
Rollins, Inc (NYSE: ROL) is a provider of pest and termite control services operating through a network of subsidiaries and franchises. Headquartered in Atlanta, Georgia, the company offers a broad range of pest management solutions for both residential and commercial customers, positioning itself as a specialist in protecting property and public health from pests and vectors.
Its service offerings include general pest control, termite inspection and treatment, bed bug remediation, mosquito and vector control, wildlife exclusion, and related specialty services.
