Pest Control Firm Rentokil Flags Softer Demand in North America


Britain’s Rentokil Initial (RTO.L) on Thursday warned of weakness in its biggest market, saying annual revenue and margins in North America were expected to miss its prior expectations, sending its shares down 15%.

Citing “near-term market uncertainty”, it now expects an annual adjusted operating margin for North America of 18.5%-19%, down from its previous guidance of about 19.5%, reflecting the impact on revenue.

Rentokil, which caters to hotels, restaurants, commercial businesses and households, completed a $6.7 billion deal to buy Terminix last year, making it the largest pest control provider in North America.

The region, which accounted for nearly half of its revenue in 2022, saw a decline of 2.5% in its U.S. products wholesale distribution business in the three months to Sept. 30, on weak demand for chemical products.

U.S. indicators have pointed to a possible recession in the world’s largest economy.

“While customer retention rates remained resilient, new residential customer acquisition was challenged by the macroeconomic backdrop,” the company said in a statement referring to North America.

Total group revenue for the third quarter rose nearly 60% to 1.4 billion pounds ($1.70 billion) in constant exchange rates as subdued demand in North America offset strong performance in other regions.

In a note, brokers RBC said that they continue to see “potential upside to numbers” from Rentokil’s underlying business.

“RTO continues to look attractive versus other defensive growth names in the sector,” added RBC.

Rentokil kept its group’s full-year guidance of adjusted operating margin at about 16.5%.

($1 = 0.8240 pounds)

Source : Reuters