Shares of Rentokil Initial have tumbled in early trading today following the company's profit warning announcement for the current fiscal year.
The pest control specialist revealed an expected £80 million impact on its operating profit due to an expansion of its US workforce, which did not align with the lower-than-anticipated demand during the peak season, as reported by .
Based in Crawley and listed on the London Stock Exchange, Rentokil operates in 80 countries and reported that the summer months in the US, typically a busy period, saw less demand for its services than anticipated.
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Rentokil also increased its sales and service teams in preparation for the high season. However, the actual lead flow and sales growth were not as high as expected, resulting in overstaffing.
The company is facing additional financial pressures from increased overtime and material costs, which are set to reduce its operating profit by £50 million for the year.
Rentokil has adjusted its profit before tax forecast for the year to approximately £700 million.
Furthermore, the firm noted slower organic growth in North America than previously projected, which is likely to decrease its adjusted operating profit for 2024 by an additional £20 million.
In a statement released to the London Stock Exchange on Wednesday morning, Rentokil stated: "Our immediate focus is on the Right Way 2 plan to improve revenue growth, through increased lead flow, sales conversion and customer retention."
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"We are taking decisive action to mitigate the cost over-runs as we exit the peak season, managing inventory more effectively, managing technician workload and overtime, and will right-size labour resources for the volume opportunity."
"We continue to believe in the fundamental strength of the North American business."
"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."
Despite challenging conditions since its acquisition by US rival Terminix last year in a deal valued at $6.7 billion, Rentokil has faced financial difficulties, culminating in an issued profit warning last October due to weakening demand in its North American market. Nonetheless, a July update highlighted "stronger" sales in Rentokil's North American pest control segment, following an injection of approximately $50m (£38.8m) to stimulate expansion.