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Rentokil Initial PLC (LSE:RTO) experienced a significant decline in its share price, falling over 17% following a warning about lower-than-anticipated sales in North America. The company reported that its US and Canadian operations saw organic revenue growth of approximately 1% in the past two months, a decrease from 2.8% in the first half of the year. This downturn was attributed to higher costs and adverse currency effects.
Despite expressing optimism about positive sales momentum in North America at its interim results, Rentokil noted that trading in July and August did not meet expectations. The company also faced additional modest disruptions related to branch integration following the major Terminix acquisition last year.
The revised full-year group adjusted profit before tax is projected to be around £700 million. This adjustment reflects lower sales expectations and approximately £50 million in additional costs. The increased expenses were due to over-resourced sales and service teams, higher overtime spending, and increased costs for materials and consumables. Furthermore, the strengthening of the pound against the US dollar is expected to contribute a £10 million headwind.
Despite these challenges, Rentokil maintains confidence in the fundamental strength of its North American business. The company emphasizes that the substantial structural growth opportunities, bolstered by the Terminix acquisition, suggest that the value creation remains, though it may take longer to realize than initially anticipated.
In response to the updated outlook, Rentokil’s shares dropped 17% to 394.17p in early trading on Wednesday, briefly falling below 390p, a level not seen since the initial pandemic lockdowns of early 2020.
