Rentokil shares plunge 19% amid lower demand in US

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Rentokil’s shares plunged by almost a fifth on Thursday as the world’s biggest pest control group said tougher economic conditions had hit demand in the US.

The London-listed company said winning new customers in the US had proved more difficult in the third quarter, pointing to “softer” demand.

The US now accounts for more than half of its sales, following Rentokil’s 2021 deal to buy Terminix for $6.7bn in order to push further into the US, the world’s largest market for pest control.

“The problem seems to be that in the US Terminix customers are said to be feeling the cost of living pressures and ordering less,” said Stephen Rawlinson, an analyst at Applied Value. 

“The decline in the US may detract from strong growth elsewhere in the period with revenue in Europe up 9.5 per cent,” he added.

Rentokil’s North American wholesale distribution division recorded a 2.5 per cent revenue drop in the quarter, which the company blamed on “lower demand for chemical products”.

Shares fell by almost 19.5 per cent on Thursday to a new 52-week low of 480.5p.

Revenues rose 53.3 per cent to £1.4bn in the three months to September compared with the same period last year.

But the company said: “While customer retention rates remained resilient, new residential customer acquisition was challenged by the macroeconomic backdrop and a softer consumer demand environment.” It pointed to a fall in house moves and rising interest rates.

Rentokil now expects its full-year performance in North America to be “marginally below” its previous expectations, with an adjusted operating margin of between 18.5 per cent and 19 per cent.

The company in July reiterated its plan to grow its North America adjusted operating margin to 19.5 per cent this year.

Simona Sarli, analyst at Bank of America, said the share price reaction “looks overdone”. However, she noted that Rentokil’s organic growth in the North America pest control division signalled “a cautious consumer backdrop and potential operational setbacks in the near term from the integration of Terminix”.

Rentokil said it remains on track to meet its full-year guidance to grow its group adjusted operating margin to 16.5 per cent and its Terminix integration plan remains “firmly on course” to deliver synergies of $60mm.