- North American business slowing
- Full-year targets lowered
- US rival Rollins outperforming
Pest control and hygiene firm Rentokil (RTO) disappointed investors with its third-quarter trading update and its weaker forecast for full-year revenues and margins in North America.
The shares tumbled as much as much as 14% to a six-month low of 508p, making them the worst performer in the FTSE 100 index.
WHAT WENT WRONG?
At the headline level, third-quarter revenue growth of 53% was pretty impressive including the Terminix acquisition, but it was less robust than the first half of the year when the firm posted a 70% increase in revenue.
Moreover, at the underlying level, third-quarter growth was 4.3% against 5.9% in the first half of the year.
North America, which makes up over 60% of group sales, saw underlying growth slow from 4.1% in the first half to just 2.2% in the third quarter.
The pest control business registered 2.3% underlying growth, but the wholesale distribution business saw a 2.5% drop during the quarter reflecting lower demand for chemical products for use in pest control and in turf and ornamental end markets.
The weakness in North America was largely offset by growth in Europe and emerging markets, but investors were unnerved by the firm’s admission that revenue and operating margins in its largest market would be lower than forecast.
Chief executive Andy Ransom remained upbeat: ‘The group delivered a good overall performance in the third quarter. We have a proven, effective strategy to deliver organic growth, focused on strong customer relationships and service quality. In addition, the portfolio effect of our global business operating in multiple markets enables us to weather regional headwinds.’
WHAT ARE RIVALS SAYING?
Rentokil’s main rival in the pest control business is US firm Rollins (ROL:NYSE), based in Atlanta, Georgia, which also operates globally.
In its second-quarter update, Rollins posted underlying revenue growth of 7.7%, comfortably ahead of Rentokil, despite a 0.3% headwind from the strength of the dollar against other currencies.
Its quarterly adjusted operating margin was 19.5%, an increase of 0.6% on the same period a year ago and again comfortably ahead of Rentokil’s first-half margin of 16.3% and its full-year target of 16.5%.
Rollins’ chief financial officer Kenneth Krause said the firm saw ‘healthy demand for our services in the second quarter and is positioned well to start the third quarter’.
President and chief executive Jerry Gahlhoff Jr added: ‘As we start the second half, we are focused on driving growth while evaluating several initiatives aimed at improving productivity. While we remain very well positioned to continue to deliver strong results in 2023 and beyond, we are focused on executing additional programs that we believe will improve the efficiency of our business model.’
Rollins is due to report third-quarter earnings on Wednesday 25 October after the market close.
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