Tough job for new CEO
Terminix chief Brett Ponton has his work cut out for him, writes Ted Evanoff.
Brett Ponton is no household name around Memphis, at least yet, but he is someone to watch.
Taxpayers handed out $24.2 million in public subsidies to prepare Downtown offices for his company four years ago.
Ponton just took control of that business, Terminix Global Holdings, the successor to Servicemaster Global Holdings, as the chief executive officer.
If Terminix is going to keep a full house of high-wage office workers (which is why the public aid was forthcoming) it’ll depend in large part on strategies put in play by Ponton.
Memphis marks his third CEO post in seven years. Readers may remember one of his first formal statements a week ago as the chief executive — “After an eventful first 50 days on the job …” Ponton began.
Eventful? Terminix had just announced a costly settlement with the Alabama attorney general.
Alabama agreement stems costs
Long before Ponton took a residency Downtown, the pest control company had been sued by consumers for defrauding Mobile-area customers.
The agreement will cost Terminix $125 million to $140 million through 2029 to settle consumer cases.
As a business taking in more than $1.5 billion every year in sales, Terminix can weather a $140 million settlement over a decade, though you have to admit it amounts to a kind of handcuff on the company.
Servicemaster Global Holdings split in two in October and went away, leaving as its successors two separate standalone businesses — Servicemaster Brands (sold to Atlanta investor Roark Capital) and Terminix Global Holdings.
Earlier in the fall when you heard investor Naren Gursahaney, the chairman of the board, speak of the wisdom of dividing Servicemaster Global in two, he
spoke of making Terminix a “pure play” pest control business.
Given the disclosure on Thursday of a settlement in Alabama, we see that pure play comes with an $140 million handcuff. Investors don’t mind.
Terminix Global’s value on the New York Stock Exchange ticked up all week. Shares closed Tuesday at $46.98, about $6 over the level on Oct. 5, when the stock first traded under ticker symbol TMX.
Terminix now stands alone
When the old Servicemaster Global was running, earnings were lumped together for Terminix, the six businesses within Servicemaster Brands as well as American Home Shield (the unit spun off in 2018 as Frontdoor Inc.), and if you go back far enough, Trugreen (the lawn care company spun off in 2013).
Now, Terminix rises and falls on its own without any cushion from its stable mates or the need to divert Terminix profits to aid any ailing units within Servicemaster Global. Why doesn’t the prospect of years of Alabama expenses falling on Terminix alarm investors?
They understand the settlement would cost less than years of wrangling individual complaints before Alabama juries. Disgruntled consumers contend the pest control business raised prices relentlessly but in some cases never sprayed for termites. A homeowner in Mobile won a $2 million judgment against the company in December after contending no termite control had been done for years.
Terminix and Alabama state legal officials each described the settlement agreement as a sound deal. Just what lesson the 12,000 Terminix workers around the country take from all this is hard to say, but it’s certain the new boss will do a lot of talking as he travels the country.
Terminix officials say Ponton won’t be available for interviews until spring, though just before taking the new job he told the Memphis Business Journal he would travel the nation — visit pest control franchises, speak to workers and outline the strategy ahead as a standalone business.
“It gives us the opportunity to focus our organization on supporting our frontline teammates in delivering a great customer experience, ultimately leading to higher customer retention,” Ponton told the newspaper.
Three CEO slots in 7 years
This isn’t a new point for Ponton. He has emphasized customer retention before.
In August, he completed a threeyear stint as chief executive of car maintenance-and-tires provider Monro Inc., which brought him in to help perk up its lackluster stock market performance.
He tried, but the stock price by last March, when the chief marketing officer was let go, was lower than three years earlier.
Monro, which originated as a Midas muffler franchise in 1957, oversees about 1,160 stores and 98 franchises. Monro sales had never rebounded fully from the 2008 recession. So the company turned to Ponton, a well-known known figure in the vehicle maintenance industry.
Earlier in his career, the University of Nebraska graduate had stood out as chief executive of Heartland Automotive, a Jiffy Lube franchisee with 575 oil-change stations. Then the larger AAMCO, a chain of about 700 transmission repair garages, hired him as chief executive.
In an interview posted on the part of AAMCO’S website read by franchise owners, Ponton spoke of the need to maintain quality, retain customers and drive up the long-term value of the individual franchises.
“I think what most owners of any business want to do is buy an asset today worth a value of X, and three to five years from now have that asset be worth a lot more than what they paid for it today,” Ponton said in the interview.
Ponton’s stint in Rochester, NY
Four years after hiring on at Pennsylvania-based AAMCO, he left for Rochester, New York, and the head office of Monro as chief executive. He stayed for three years before taking the Memphis job.
Stepping in at Monro, he toured the network of stores and franchises in 2018 and lauded the Monro Forward initiative. According to the trade journal Tire Business, the initiative included intense training for the 7,000 technicians in the garages and bringing in an analytics firm to help spot and keep customers and identify under-performing stores.
For various reasons, the Monro Initiative didn’t translate into long-term gains on the stock market. The month he joined the company, Monro shares traded for $56.95, rose to $70 in 2019, but had slipped below $44 this past March. Despite the nation’s economic rebound over the summer, Monro traded Friday morning at $40.35.
Speaking to stock market analysts in July, three weeks before he left Monro, Ponton said the pandemic reduced sales as consumers sheltered in place and worked from home.
“The pandemic gave us the opportunity to accelerate the pace of some of our transformation initiatives, including our store staffing,” Ponton told analysts. “We believe we have rightsized our store staffing and structurally changed our labor model to consistently have the right mix of technicians with the appropriate skill level and corresponding compensation aligned with demand and the level of services performed in each store. In addition, we have tightened our marketing spend. … Overall, we are encouraged by the cost savings that derive from these initiatives, which we believe set us up well to drive better operating performance going forward.”
Restructuring might be the cure for Monro, but what’s the ticket for Terminix? We’re about to find out as Ponton, a cost-conscious financial executive, sets out to lead the company.