Rentokil Initial shares plunge after pest control firm issues profit warning

Rentokil Initial shares fell on Wednesday morning after the company issued a profit warning amid slower trading in North America.

The pest control giant, which has been investing heavily in expansion in the region, told shareholders its full-year adjusted operating profit could be hit by up to £80m.

Rentokil has expanded its workforce to take advantage of expected growth ahead of peak season, but noted that weaker lead flow and sales volumes left the company with “excess capacity”.

Now the company is forced to cut jobs.

Combined with higher overtime and material costs, the company predicts operating profits will be around £50m this year due to the extra costs.

A further £20 million is being lost due to lower than expected trading activity in July and August, while a further £10 million could be lost due to exchange rate fluctuations.

Rentokil Initial expects to achieve an adjusted operating profit of around £700 million this year.

Shares fell 18.5 per cent to 387.5p on Wednesday morning, making them the biggest fallers on the FTSE 100 and extending their losses over the past 12 months to around a third.

Rentokil said it was taking “decisive action” to minimise excess costs, including better management of inventory, overtime and technician workloads, and “adapting workforce to meet demand”.

“We continue to believe in the fundamental strength of the North American business,” the Crawley-based group added.

‘The substantial structural growth opportunities, enhanced by the benefits of the Terminix transaction, mean that the opportunity for value creation remains intact, although this will take longer to realise than expected.’

Rentokil became the world’s largest pest control operator when it acquired Terminix in a transformative £5.1 billion deal in October 2022 as part of efforts to expand into North America.

However, trade in the United States has been hit by weaker demand from wholesale customers such as small pest control and landscaping companies.

Russ Mould, investment director at AJ Bell, said: ‘Investors who were convinced of the merits of the company’s major US acquisition of Terminix may now be suspect.

‘It was widely believed that the company had paid a high price at the time, and it has proven to be a difficult task to fully involve the company in the takeover.’

In June, activist investor Nelson Peltz became one of the largest investors in Rentokil after buying a stake in the group through his hedge fund Trian Partners.

Many analysts believe Peltz, 81, could launch a proxy campaign at the company that could lead to Rentokil moving its primary listing from London to New York.