Terminix reaches deal in Alabama
Business practices bring on lawsuits
Stung by Alabama lawsuits over its business practices, Terminix Global Holdings Inc. has reached an agreement with Alabama’s attorney general settling a dispute over treatment for Formosan termites.
Memphis-based Terminix announced the agreement Thursday, reporting the settlement would result in a $7 million third-quarter loss.
The deal requires the company set up a $25 million fund to manage customer remediation measures and settle future termite damage claims disputes, and to pay the Alabama attorney general’s office $19 million.
Alabama’s Department of Agriculture and Industries last year investigated more than 416 consumer complaints leveled at various pest control firms, Mobile television station WPMI reported, noting complaints increased after Terminix raised its prices. In December, Terminix lost a $2 million lawsuit brought by a Mobile homeowner who contended Terminix in spite of a pest control contract failed to treat the house for termites.
On Thursday, Terminix Global disclosed future termite damage claim expenses “above historical norms” will range from $140 million to $150 million through 2029.
“A state-sponsored, non-litigated avenue more quickly resolves damage claim disputes, which will provide immediate benefits to our impacted customers and reduce future litigated claims,” Tony Dilucente, Terminix Global chief financial officer, said in a statement released by the company.
In Alabama on Thursday, officials lauded the deal as relief for consumers defrauded by Terminix. The capital city newspaper Montgomery Advertiser quoted the attorney general, Steve Marshall, saying: “This is a historic day. A historic settlement, not only as to the recovery that will take place but more importantly as to the scope of the fraud that we found with Terminix and what it did for consumers across the state.”
In Mobile, Ashley Rich, the county district attorney, said Terminix targeted customers in lifetime contracts but sometimes doubled, tripled and quadrupled rates over time, the Montgomery newspaper reported, adding that “customers who were the subject of those price increases will see a refund, and anyone who left the company as a result of the change will receive $650 or be paid the difference.”
The third-quarter profit report was the first issued by Terminix Global since the former Servicemaster Global Holdings Inc. was split in October into two standalone companies — Servicemaster Brands and Terminix Global.
For the quarter, Terminix Global sales
revenue rose 10% to $512 million, compared to $465 million in the same period last year, while after-tax income plunged to the $7 million loss from a $25 million profit a year earlier. The loss was driven by costs associated with the Mobile Bay settlement agreement, the company said, reporting a charge of $49 million and “a reduction in termite renewal revenue of $3 million related to the execution of the settlement.”
Brett Ponton, recently hired as Terminix Global chief executive officer, issued a positive statement Thursday, saying future revenue and profits are expected to exceed forecasts made earlier in the year as the pandemic set in.
“After an eventful first 50 days on the job,” Ponton said in a statement released by the company, “I am encouraged by the momentum we have as we continue our progress toward consistent, sustainable growth and profits. Strong residential revenue growth and profit margin improvement continue to provide considerable operating momentum to the underlying Terminix business.
“Progress on initiatives to improve teammate and customer retention are driving productivity improvements that are increasing profits,” Ponton said. “The commercial business improved sequentially in the third quarter but remains behind the prior year as economic uncertainty from the pandemic lingers. We were also able to negotiate a favorable Formosan termite settlement in the Mobile Bay area that will improve the predictability of our results by reducing our future exposure to termite damage claims.”
Following the disclosure of the Alabama settlement agreement, traders pushed Terminix Global’s stock price higher Thursday morning.
Shares traded at $48.90 near mid morning, up 69 cents from Wednesday’s close.
Kirsten Fiscus of the Montgomery Advertiser contributed to this report.