Rentokil Initial PLC (LSE:RTO) issued what analysts called a "material profit warning" of surprising scale on Wednesday, raising more concerns about the pest controller's US acquisition of Terminix.
The FTSE 100 group said North American organic growth is now expected to be 1% in the second half, and that group profits are now expected to be £700 million for the year due to higher costs from higher spending on sales and services teams.
Analysts at Stifel had been forecasting 2.8% growth from North America for the second half, while North American operating profit margins are now expected to be 17.2% compared to its 19% forecast.
The £700 million profit guidance is 10% below Stifel's estimate, analysts said: "The scale of the profit warning is surprising".
Previously Rentokil struggled for organic momentum and had planned greater investment in marketing to try and move the dial in the second half.
"Clearly this has not happened, and the low organic growth figure is a concern given the full branch integration is not in full swing," they added.
Analyst Russ Mould at AJ Bell said one "would think pest control is a stable business with consistent demand" but the US warning "is a bit of mess".
He said the weaker-than-expected revenue has been "compounded by problems of the company’s own making such as insufficient control of costs hitting profitability", with this "lack of discipline" not reflecting well on management, and measures to right-size its workforce "amounting to closing the stable door after the horse has bolted".
“Investors who were sold the merits of the company’s big Terminix acquisition in the US may now be smelling a rat," he said, with the company widely perceived to have paid a high price at the time and bringing the business fully into the fold now proving the challenge that many suspected it would be.
What is the third profit warning in a year would provide further ammunition for activist Nelson Peltz, whose Trian joined the shareholder register in June.
"Current management will be shifting nervously in their seats, with the pressure to take dramatic action, including moving its primary listing to the US, only likely to increase," said Mould.