Rentokil warns on profits after slower peak season in North America

(Sharecast News) - Pest-control giant Rentokil Initial has scaled back its profit guidance for the full year after weaker-than-expected summer trading in North America. The company, which had already reduced profit targets in July due to additional investments in the second half, said that revised growth expectations and higher costs mean adjusted operating profits would be £50m lower than current expectations.

As such, Rentokil is now guiding to an adjusted profit before tax and amortisation of £700m for 2024, down from £766m last year.

"While we saw some positive momentum in North America sales activity at the end of the second quarter, the trading performance in July and August was lower than anticipated. There has also been some modest disruption to organic growth from branch integration," the company said in a statement.

Organic revenues in North America, which accounts for 60% of group sales, are now expected to grow by just 1%, following 1.3% in the first half. At the time of its interim results in July, Rentokil had guided to organic revenue growth for the region of 2-4%.

Meanwhile, both sales and service resource were expanded ahead of the peak season, meaning operations were "over-resourced" as a result of weaker sales growth. This then led to an increase in overtime expenditure as staff worked to drive additional sales. Spend on materials and consumables was also higher than expected.

Rentokil also said that a stronger Sterling against the US dollar, if current rates are maintained through to the year-end, will result in additional £10m headwind to the bottom line.

"We continue to believe in the fundamental strength of the North America business. 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," the company said.