Rentokil Shares Decline Following Third Warning of North America Weakness, Reports Reuters

By Yamini Kalia and Yadarisa Shabong

Rentokil Initial has issued a warning about a decline in its annual profit, primarily due to weaker sales in North America, its largest market. This development led to a significant drop in the British pest control company’s shares, which plummeted by as much as 20%.

This marks the third instance within the past year that the company has alerted investors about challenges in its North American operations. During a recent conference call with analysts, CEO Andy Ransom expressed his disappointment regarding the execution of the company’s strategic plan, which was introduced in March to drive revenue growth. Despite this, he maintained confidence in the strategy and noted that there would be no changes made.

As a result of these challenges, Rentokil’s shares, which have lost approximately a third of their value since the initial warning in October of the previous year, fell to 380 pence. This decline made the stock one of the day’s biggest losers.

Last year, Rentokil generated about 60% of its revenue from North America, and to mitigate cost overruns, the company announced that it would reduce an undisclosed number of positions within its U.S. workforce. Rentokil now anticipates its full-year adjusted pretax profit to be around £700 million, a decrease from the £766 million recorded the previous year. Analysts had projected a pretax profit closer to £777 million.

Sales in North America during July and August fell short of expectations, and the company now forecasts organic revenue growth of approximately 1% for the second half of the year. Previously, Rentokil had anticipated growth at the lower end of a 2-4% range.

The company has faced difficulties integrating its U.S. acquisition of Terminix, completed in 2021, and noted that this merger has caused a minor disruption to its organic growth.

Since issuing its first profit warning in October of the previous year, roughly £5.4 billion has been lost in the company’s market capitalization. Analysts have indicated that this profit warning may raise further questions about management oversight and performance in the region.

In an effort to boost customer acquisition in North America, Rentokil has also ramped up its marketing expenditures. Activist investor Nelson Peltz’s Trian Fund Management has acquired a stake in Rentokil and expressed interest in discussing strategic initiatives back in June.

Rentokil and its competitor Rollins account for nearly half of the U.S. pest control market, with Rentokil standing as the larger entity following its acquisition of Terminix.