Rentokil Initial shares plunge as pest control firm issues profit warning

Rentokil’s initial actions plunged on Wednesday morning after the company issued a profit warning following slower trading in North America.

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

Rentokil expanded its workforce to capitalise on expected growth ahead of the peak trading season, but noted that poorer lead flow and sales volumes left it “over-resourced”.

Now it has been forced to cut jobs.

Combined with higher overtime and materials costs, the company is expecting an operating profit loss of around £50m this year due to additional costs.

A further £20m loss is expected to come from lower than anticipated trading activity during July and August, while a further £10m could be lost due to exchange rate fluctuations.

As a result, Rentokil Initial believes it will record approximately £700 million in adjusted operating profit this year.

Its shares fell 18.5 per cent to 387.5 pence on Wednesday morning, making them the biggest faller in the FTSE 100 and taking its 12-month losses to about a third.

Rentokil said it was taking “decisive action” to minimise excessive costs, including better management of inventory, overtime and technician workloads, as well as plans to “right-size employees to meet demand”.

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

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

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

However, trade in the United States has suffered due to weak demand from wholesale customers such as small pest control operators and landscaping companies.

Russ Mould, investment director at AJ Bell, said: ‘Investors who were convinced of the merits of Terminix’s big US acquisition may now be smelling something fishy.

‘The company was widely perceived to have paid a high price at the time, and reintegrating the business fully is proving to be a difficult challenge.’

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

Many analysts believe Peltz, 81, could foment a proxy drive at the company that could result in Rentokil shifting its primary stock exchange listing from London to New York.