Rentokil says American slowdown will hit profits

A slowdown in its key North American market is set to hit profits at Rentokil Initial, with the warning from the world’s largest pest control company promptly wiping more than £2 billion off its stock market value.
Rentokil said it expected to make an adjusted pre-tax profit of about £700 million this year, lower than the £780 million that City analysts had forecast, because of weaker sales in July and August. It also forecast an adjusted profit margin of about 15.5 per cent, a downgrade from predictions in July for margins to be “marginally ahead” of the 16.6 per cent recorded last year.
The drop-off in demand was exacerbated by an increase in hiring of sales and technicians before an anticipated increase in activity. This had left the business “over-resourced”, with an expected hit to profits of about £50 million.
It is the second time in less than 12 months that the company, which provides pest control, hygiene and well-being services, has lowered profit expectations, after announcing in October that winning new customers in North America was proving more difficult than anticipated.
Sales in North America are expected to grow organically by about 1 per cent during the second half of the year, compared with 1.5 per cent in the second quarter and lower than an implied 2 per cent to 3 per cent increase needed to hit its full-year guidance of 2 per cent to 4 per cent, according to an analysis by Jefferies, the investment bank.
The FTSE 100 group underlined its exposure to North America with its 2021 acquisition of Terminix, a termite treatment specialist, for $6.7 billion. The region accounts for more than half of Rentokil’s sales. The deal will release cost synergies of $325 million, the company has said, $162 million of which have been realised.
The latest alert will be a blow to Nelson Peltz, the activist investor, whose Trian Partners vehicle took an undisclosed but “significant” stake in the company in June, thought to be less than 3 per cent of the outstanding share capital. Peltz, 82, is best known for turnaround campaigns at consumer goods companies including Mondelez and Heinz. He took a stake in Unilever, the owner of Marmite and Dove soap, shortly after the conglomerate launched a failed bid for GSK’s consumer healthcare division in 2022.
Rentokil shares were down by 90p, or 19 per cent, at 385½p in lunchtime trading.