Rentokil Initial plc (RTO) shares experienced a steep decline on Wednesday, following the company’s revision of its guidance for the second half of FY24. The company now expects organic revenue growth in North America to be around 1%, a significant reduction from the previous prediction of a 2% to 4% range. This revised forecast is attributed to weaker-than-expected trading in July and August, coupled with integration challenges following recent acquisitions. These factors are expected to impact operating profit by £20 million.
During its first-half results announcement, Rentokil had anticipated North America organic revenue growth to be at the lower end of the 2% – 4% range for the full year. The company’s revised forecast suggests a considerable adjustment in its outlook for the region.
The company attributes the revised forecast to several factors. Firstly, while the end of the second quarter saw positive momentum in North America sales activity, trading in July and August fell short of expectations. Secondly, the integration of recently acquired branches has resulted in some disruption to organic growth.
Additionally, Rentokil anticipates a currency headwind of approximately £10 million, bringing the adjusted PBTA for FY24 to around £700 million. The company also stated that it had over-expanded sales and service resources due to lower-than-expected lead flow and sales growth, leading to increased overtime and higher spending on materials and consumables. These factors are projected to reduce FY24 Group adjusted operating profit by approximately £50 million.
Despite these challenges, Rentokil remains committed to controlling costs post-peak season. The company plans to optimize inventory, manage technician workload and overtime, and align labor resources with demand.
The impact of these adjustments is evident in the stock market. RTO shares closed down 19% at $25.60 on Wednesday. This significant decline reflects investor concern regarding the revised guidance and its potential impact on future earnings.
