Rentokil Initial (NYSE: RTO) warned of lower annual profit on Wednesday after weaker-than-expected sales in its largest market North America, sending shares of the British pest control company as much as 20% lower.
This is the third warning about weakness in its North America business in the past year.
In a conference call with analysts and investors, CEO Andy Ransom expressed disappointment in the execution of the group’s strategy, launched in March, to improve revenue growth. However, he added that he had confidence in the plan and would not change it.
The company’s shares, which have lost about a third of their value since the first North American warning in October last year, were down 20% to 380 pence at 0800 GMT. The stock was the biggest loser on the FTSE 100 index.
Rentokil (NYSE: RTO), which made about 60% of its revenue in North America last year, said it would cut an undisclosed number of jobs in its U.S. workforce to address cost overruns.
Rentokil now expects full-year adjusted pretax profit to be about 700 million pounds ($916 million), versus the 766 million pounds it reported last year.
Analysts at RBC Capital Markets had expected a pretax profit of about 777 million pounds.
North America sales in July and August came in lower than anticipated, organic revenue growth is now expected to grow about 1% in the second half.
The company had previously expected revenue growth to be at the lower end of a 2-4% growth range.
Rentokil (NYSE: RTO), which bought U.S rival Terminix in 2021, has been struggling to integrate its business and said on Wednesday it saw a modest disruption to organic growth from the deal.
About 5.4 billion pounds have been wiped from the pest control company’s market capitalization since it issued its first profit warning in October 2023.
“The profit warning will raise further questions on management control and visibility in the region,” Jefferies’ analyst Allen Wells said in a note.
The company has also increased its spending on marketing in a bid to attract more customers in North America.
Activist investor Nelson Peltz’s Trian Fund Management has built a stake in the company and in June said it was interested in discussing “ideas and initiatives”.
Rentokil and rival Rollins (NYSE: ROL) account for roughly half of the U.S. pest control market, with Rentokil the larger player following the Terminix deal.
($1 = 0.7642 pounds)
(Source: ReutersReuters)
