Rentokil shares plunge as cockroach killer warns of $105 million hit to U.S. arm

By Louis Goss

Rentokil Initial on Wednesday said slow sales in North America and negative currency impacts will see it take an GBP80 million ($105 million) hit to its full-year profits, in news that caused a sharp 18% drop in the pest control company's share price.

The Crawley-headquartered company said its already troubled North American business had over-resourced ahead of the peak summer infestation season before experiencing slower than expected growth in what is set to see the wider company take a GBP70 million hit to its profits.

The FTSE-100 pest control firm also said the strengthening value of the British pound versus the U.S. dollar would see it take a further GBP10 million hit if the exchange rate stays at current levels.

Rentokil Initial (UK:RTO) shares, listed on the London Stock Exchange, fell 18% on Wednesday having previously gained 10% in the year-to-date. Rentokil shares previously fell sharply in October 2023 after the company said a slowdown in the U.S. economy would hit its North American unit.

Rentokil said the slowdown in sales growth over the peak July and August seasons is set to see revenues from its North American business grow by just 1% year-on-year in the second half of 2024, leading to a GBP20 million hit to its business.

The cockroach killer said a subsequent push to boost its U.S. sales by getting its staff to work on the weekends had, in turn, led to an increase in its overtime costs, on top of its higher resource and consumables costs, leading to it spending an extra GBP50 million hit.

The exterminator added that the negative impacts combined with the detrimental currency impacts would see its full-year profits come in GBP80 million lower than previously expected, in what will see Rentokil post pre-tax and amortization profits of around GBP700 million in the full-year 2024.

Rentokil Initial previously posted adjusted profit before tax of GBP766 million in 2023 after having received a major boost to its business from its October 2022 acquisition of its main U.S. rival Terminix.

Rentokil, which was founded by British entomologist Harold Maxwell-Lefroy in 1925 shortly before he died while developing a housefly killer in his own laboratory, first entered the U.S. market through the acquisition of pest control company Josephon's in 1974.

The company's later acquisition of Western Exterminator for $114.6 million in 2012 saw Rentokil Initial become one of the biggest players in the U.S. pest control market before it made a series of subsequent acquisitions that expanded its footprint in the country over the following decade.

Rentokil later acquired its main rival Terminix in October 2022 in what saw it become the largest pest control company in the world. A year later, the British firm said a downturn in the U.S. economy would hit its business, causing its share price to drop by a fifth.

"We continue to believe in the fundamental strength of the North America business," Rentokil said in a statement. "The substantial structural growth opportunities, enhanced by the benefits of the Terminix transaction, means the value creation opportunity remains intact, albeit taking longer to realise than anticipated."

In June, Nelson Peltz' activist fund Trian Partners confirmed to MarketWatch it had taken a "significant position" in Rentokil and that it had started negotiations with the pest control company's management. Trian Partners had previously led successful campaigns against companies including Heinz, DuPont and Disney.

-Louis Goss

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09-11-24 0540ET

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