Rentokil Initial PLC (LSE:RTO) shares plunged over 17% after it warned that sales in North America in the past two months were lower than expected, with profits likely to be hit by higher costs and currency headwinds.
Organic revenue growth from the US and Canadian operations is now expected to be around 1% in the second half of the year, down from 2.8% in the first half.
At the FTSE 100 group’s interim results it had expressed some optimism about positive momentum in North America sales at the end of the second quarter, however, it said today that trading in July and August was worse than anticipated, with additional “modest disruption” to from branch integration following the major Terminix acquisition last year.
Full-year group adjusted profit before tax is now expected to be around £700 million, down from £766 million last year and below analyst forecasts for a similar or higher level this year.
This reflects lower sales expectations and roughly £50 million of extra costs, which it said were from sales and service teams being “over-resourced” amid the lower-than-expected flow of sales leads, with increased weekend working also resulting in increased overtime spending, materials and consumables.
A £10 million headwind from the strengthening of the pound against the US dollar is also now anticipated too.
“We continue to believe in the fundamental strength of the North America business,” Rentokil said.
“The substantial structural growth opportunities, enhanced by the benefits of the Terminix transaction, means the value creation opportunity remains intact, albeit taking longer to realise than anticipated.”
The shares slumped 17% to 394.17p in early trade on Wednesday, earlier dropping below 390p, levels that have not been seen since the initial pandemic lockdowns in early 2020.