Think your calls are down? In the first half of 2024, Roto-Rooter's revenue dropped by $26 million compared to the first half of 2023 (5.4% decrease).
According to Roto-Rooter's 10-Q SEC filings for the six months ended June 20, 2024, Roto-Rooter states,
"Our competitors may succeed in developing new or enhanced products and services more successful than ours and in marketing and selling existing and new products and services better than we do... We cannot make any assurances that we will continue to be able to compete successfully with any of these companies."
For plumbing businesses across America, 2024 has proven to be a year of significant challenges and unexpected hurdles. Roto-Rooter, a prominent name in the plumbing industry, exemplifies the struggles many in the sector are facing.
The Ripple Effect: How Clogged Drains Became a Flood of Problems
As outlined in Roto-Rooter's recent 2024 10-Q financial report, the company is grappling with significant challenges in its two primary service segments, drain cleaning and plumbing.
Decreased Demand For Drain Cleaning
Roto-Rooter implemented a 2.1% price increase to try and offset the lack of demand. Drain cleaning booked calls plummeted by 7.9% in the first six months of 2024 compared to the same period in 2023. This resulted in an overall decline in revenue for this segment. The data suggests that Roto-Rooter is struggling to maintain its market share and pricing power in the face of declining demand.
Decreased Demand For Plumbing Services
In a bid to attract more customers, Roto-Rooter lowered plumbing prices by 1.0% during the first six months of 2024. However, booked calls still decreased by 4.1%, leading to shrinking revenues. This indicates that the company is facing challenges in both pricing and attracting customers in this segment.
Possible Explanations for Roto-Rooter's Declining Revenue
Economic Slowdown: A weakening economy could be causing consumers and businesses to delay or reduce spending on non-essential home and building maintenance, including plumbing and drain cleaning services.
Increased Competition: In a weaker economy, this competition could intensify as companies fight for a shrinking pool of customers, potentially leading to more aggressive pricing strategies and further pressure on Roto-Rooter's revenues.
Impact on Commercial Customers: it's reasonable to assume that businesses, like individual consumers, might also cut back on non-essential maintenance expenses during an economic downturn.
Navigating the Shifting Sands That Is Impacting the Plumbing Industry
The plumbing industry in the United States is facing a dynamic environment shaped by evolving economic forces and shifting homeowner priorities. While opportunities for growth exist, plumbing companies must understand and adapt to these key trends to thrive in this new landscape.
Homeownership Is Becoming More Expensive
Between October 22 and October 23, 2023, Angi conducted a survey of 5,000 people from the general population and 1,400 homeowner households that completed a remodeling project and hired a professional for at least part of the work in the past year
- In 2023, homeowners spent an average of $2,458 on home maintenance.
- In 2019, the average home maintenance spending was $1,105.
This drastic increase underlines the rising cost of homeownership across the board, including maintenance services. A general guideline suggests budgeting around 1% of a home’s value annually for maintenance. Based on an average home price of $430,000 in the United States in 2023, average maintenance spending should be approximately $4,300.
Homeowners are spending more per project, potentially due to inflation. This means that while homeowners may be allocating more money to home improvement overall, they might be undertaking fewer projects due to higher costs. This could result in homeowners delaying larger plumbing jobs or opting for smaller, less expensive repairs instead
Shift In Home Improvement Motivations
There's a notable shift away from return on investment (ROI) as a primary motivator for home improvements. Homeowners are now prioritizing maintaining their home's condition and adapting it to their lifestyle needs. This change could lead to a higher demand for maintenance-oriented services, including regular plumbing check-ups and drain cleaning.
Homeowners are facing higher costs for goods and services across the board, potentially leading them to prioritize essential expenditures and defer preventative maintenance. The Angi report specifically mentions that the top reason for not completing home projects in 2023 was higher-than-anticipated costs.
This suggests that even if homeowners recognize the value of preventative maintenance, they may be putting it off due to budgetary pressures.
Plumbing maintenance often involves less obvious tasks like checking for leaks, inspecting pipes, and testing water pressure. These tasks might not be perceived as urgent by homeowners unless a problem arises.
The financial data from Roto-Rooter provides further support for the decline in preventative plumbing maintenance. The company reported a decrease in revenue for drain cleaning services in both 2023 and the first half of 2024. They attribute this decline to a decrease in the number of jobs, suggesting that homeowners are less likely to call for drain cleaning services unless they're experiencing a blockage or other immediate issue.
Overall, homeowners are currently prioritizing immediate plumbing needs over preventative maintenance. This reactive approach could stem from a combination of financial constraints, a focus on more visible maintenance tasks, and a tendency to address problems only when they become unavoidable.
Plumbing companies need to consider strategies to educate homeowners about the benefits of preventative maintenance and encourage them to invest in these services despite economic pressures.
Visualizing Roto-Rooter’s 2024 Revenue Decline
The image shows two graphs:
- Roto-Rooter Revenue Decline Over Time:
This line graph shows the revenue decline from Q1 2023 to Q2 2024. The revenue starts at about $250 million in Q1 2023 and drops to about $221 million by Q2 2024, illustrating the overall downward trend. - Quarterly Revenue Comparison:
This bar chart compares the revenues for Q1 and Q2 of both 2023 and 2024. We can see:
- Q1 2023 (blue bar): About $250 million
- Q1 2024 (orange bar): About $235 million
- Q2 2023 (green bar): About $232 million
- Q2 2024 (red bar): About $221 million
These graphs effectively show the year-over-year declines for both Q1 and Q2, as well as the overall downward trend in revenue.
More Information On Roto-Rooter’s 2024 Revenue Decline
To better understand the challenges Roto-Rooter faces in 2024, let's delve into the key financial metrics:
- Year-to-Date Revenue Decline:
Roto-Rooter has experienced a 5.2% decrease in revenue so far this year. - Quarterly Comparisons:
- Q1 2024 vs. Q1 2023: A 5.8% decrease in revenue.
- Q2 2024 vs. Q2 2023: A 4.6% decrease in revenue.
- Full-Year 2024 Forecast:
The company anticipates an overall 4-5% revenue decline by the end of the year.
Roto-Rooter's 2023 Financial Picture
In 2023, Roto-Rooter brought in a combined $249,069,000 revenue in the 4 following categories; Drain Cleaning, Plumbing Services, Excavation Services, and Water Restoration Services.
Let's assumes that the number of Roto-Rooter locations in the United States is 496. In 2023, Roto-Rooter generated $1,742,964 in net-revenue per location. That $1,742,964 is the 2023 total for Drain Cleaning, Plumbing Services, Excavation Services, and Water Restoration Service.
Drain Cleaning
Did you know that in 2023, Roto-Rooter brought in $249,069,000 in sold Drain Cleaning jobs. That's about $502,159 per Roto-Rooter location.
Plumbing Services
Did you know that in 2023, Roto-Rooter brought in $196,695,000 in sold Plumbing Service jobs. That's about $396,562 per Roto-Rooter location.
Excavation Service
Did you know that in 2023, Roto-Rooter brought in $233,196,000 in sold Excavation Service jobs. That's about $470,194 per Roto-Rooter location.
Water Restoration Service
Did you know that in 2023, Roto-Rooter brought in $185,550,000 in sold Water Restoration Service jobs. That's about $374,113 per Roto-Rooter location.
Not bad for a company that in 2023 saw a 7.4% decrease in the total number of booked service calls compared to 2022.
Source: CHEMED CORPORATION INVESTOR RELATIONS
