Rentokil Initial shares fall by 19% after profit warning

Weaker demand for termite extermination services sent shares in Rentokil Initial crashing by 19% after the pest control company warned of lower profits caused by a slowdown in North America.

The FTSE 100 company, which became the biggest pest control company in the world in 2021 with a $6.7bn (£5.14bn) takeover of US rival Terminix, warned that adjusted profits were likely to be below £700m – short of the £776m expected by analysts. Revenue growth in North America was now expected to be about 1% in the second half of 2024.

The profit warning sent its shares, which reached 615.4p last September, tumbling by 19% to 386.4p.

Rentokil said it had over-resourced its sales and service operations in North America, which now account for half of its sales after the Terminix deal. However, the division had experienced lower-than-expected sales leads and growth over the peak summer season.

Earlier this year the company launched a new “Terminix It” advertising campaign, but Andrew Ransom, the chief executive, told analysts that its termite business had been weaker than expected.

“Within residential, commercial, termite and more broad based, the weaker of the three has been termite for us. I don’t think there is a particular story there; we need to improve our termite performance,” he said.

Termites that damage wood and timber in buildings are a growing problem in the US, where there are more than 50 termite species that collectively cause $2bn in subterranean damage each year, according to Rentokil.

The profit warning will add to growing pressure on the company, in which activist investor Nelson Peltz’s Trian Partners built up a stake in June. There were reports in July that Philip Jansen, a former BT chief executive, was mulling a potential bid for Rentokil as it struggled to deliver benefits from the North American acquisition.

Rentokil said in the update that it continued to believe in the fundamental strength of its North America business, where the US makes up more than half of the global pest control market.