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Rentokil’s shares plunged 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 North American customers had proved more difficult in the third quarter, pointing to “softer” demand and people moving house less frequently because of soaring borrowing costs.
The US now accounts for about half of Rentokil’s sales following its 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 said that while “customer retention rates remained resilient, new residential customer acquisition was challenged by the macroeconomic backdrop and a softer consumer demand environment”.
The company has also seen weaker demand from its US wholesale customers, which include smaller pest control groups as well as landscaping businesses that buy its chemicals for water and lawn treatments. That division recorded a 2.5 per cent revenue drop in the quarter.
Shares fell almost 20 per cent in mid-afternoon trading on Thursday to a new 52-week low of 480.5p.
The decline came despite a 53 per cent jump in revenue year on year to £1.4bn in the three months to September. That followed an almost 70 per cent increase in first-half revenues.
The multibillion-dollar pest control industry expanded strongly during the pandemic because of increased concerns about viruses and diseases stemming from Covid-19. More recently, customers have been worried about the rise of bedbug infestations, particularly in France and the UK.
Rentokil said it experienced a 32 per cent jump in UK bed bug inquiries in the nine months to September compared with the same period last year.
The company said it was deploying “heat treatments [and] bed bug sniffer dogs” and was also working on “new early warning technologies”.
Rentokil now expects its full-year performance in North America to be “marginally below” its previous expectations. On Thursday, it scaled back its adjusted operating profit margin forecast to between 18.5 and 19 per cent, down from previous guidance of 19.5 per cent.
Simona Sarli, an analyst at Bank of America, said the share price reaction “looks overdone”. However, she noted that organic growth in Rentokil’s 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 remained on track to meet its full-year guidance to increase its group adjusted operating margin to 16.5 per cent, adding that its Terminix integration plan remained “firmly on course” to deliver savings of $60mm this year.
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