American Home Shield 2004 Annual Report Download - page 22

20 ServiceMaster 2004 annual report
management discussion and analysis of financial condition and results of operations
Results of Operations
Consolidated Review — 2005 Outlook and Guidance
For the past several years, ServiceMaster (the “Company”) has
challenged itself to perform as it transforms, adapt to new trends
in the marketplace, manage its costs, invest in process and tech-
nology improvements, and launch new marketing programs
and service offerings. Management believes that the Company
has made a lot of headway in doing this while also improving its
revenue and earnings growth.
In 2005, the Company is focusing on the following major initiatives:
1. Improving Problem Resolution – The Company believes it can
differentiate its brands by handling problem resolution quicker
than its competitors. The Company’s research shows that the
number one reason people choose not to renew with Service-
Master brands is related to frustrations with problem resolution.
2. Improving the Sales Process – The Company is highly
focused on improving its sales process, to be more effective in
closing sales by answering and following up on all inquiries,
doing business with customers the way they prefer it, and by
using channels and methods of communicating with customers
that are their preference. This is why the Company is making a
substantial investment in marketing and sales expansion in the
first quarter of 2005.
3. Enabling and Protecting the Technicians – Great service
people deliver a great service experience when they are given
the tools to succeed. The Company is equipping its technicians
with the tools necessary to better serve customers. In 2005, the
Company is conducting pilots and planning rollouts related
to improving technician productivity through the deployment
of routing and scheduling tools, increased use of handheld
technologies, and expanded use of global positioning systems.
4. Recommitting to Being a Values-Based Company – The
Company’s commitment to its objectives is being renewed.
Over the last two years, the Company has re-examined its
values. The culmination of this process has resulted in the addi-
tion of a new corporate objective, “To Excel With Customers”.
The Company’s commitment to honoring God in all we do, to
developing our people and to growing profitably is unwavering.
The renewed objectives will be reviewed with the Company’s
shareholders at the 2005 Annual Meeting.
As the Company enters 2005, it has brought in a few new execu-
tives and promoted and moved other experienced leaders across
businesses. These new combinations of leaders create teams
with complementary skills, bringing together discipline and
ideas, strategy and operational strengths, making sure that the
balance of getting it done in the field every day and making the
right decisions for the long term of our businesses is necessarily
and appropriately balanced.
The Company is not satisfied with the financial performance of
all its businesses. While the Company enjoyed strong perfor-
mances from several units in 2004, senior management believes
that there are two businesses that are still not performing up to
their potential; TruGreen LandCare and ARS. In both businesses,
the Company has strengthened the leadership teams and is working
on the right strategies and processes, and management believes
progress is being made. In 2005, the Company is counting on
more tangible results in both revenue and margin improvement
in these businesses.
As the Company looks toward 2005, it will stay focused on revenue
growth, pricing, improved retention, and consistently delivering
a satisfied service experience. The Company continues to make
investments in its sales force and processes and technologies to
sustain growth. During the Company’s off-season first quarter, it
will make incremental investments in salespeople and marketing
programs. In addition, this quarter will also include the first-time
absorption of off-season costs in the Canadian lawn care operations
which were acquired in April 2004. The Company expects these
factors will impair first quarter profit comparisons but will be
offset by stronger results in the remaining three quarters of 2005.
The Company continues to expect full year revenue growth for
2005 to be in the mid- to high-single digit range and that earnings
per share will grow somewhat faster than revenues. The Company
expects cash flows from operating activities to continue to sub-
stantially exceed net income.
2004 Compared With 2003
Revenue for 2004 was $3.8 billion, a five percent increase over
2003. All of the revenue growth was derived from internal
sources as the positive impact from acquisitions was offset by
revenue that was eliminated as a result of branch closures and
consolidations at TruGreen LandCare and ARS in 2003 and
early 2004. The five percent overall internal growth rate repre-
sents a sharp rebound from 2003 and is the strongest rate of
growth that the Company has experienced in the past five years.
Management believes that it is starting to see tangible results
from its initiatives to better differentiate its brands, develop new
marketing methods and channels, and improve customer satis-
faction and retention.
The Company reported income from continuing operations in
2004 of $324 million and income from discontinued operations
of $7 million. The net income of $331 million in 2004 compared
with a net loss of ($225) million in 2003. Diluted earnings per
share were $1.11 in 2004 and a loss of ($.76) in 2003.