19th Oct 2023 10:18
(Alliance News) - Bedbug panic in Europe may give Rentokil Initial PLC a demand boost there, but it worries about a slowdown in North America which is hanging over the stock now.
The pest control and hygiene firm cut North American regional guidance due to weaker demand there.
The pest control and hygiene firm said group revenue in the third-quarter surged 53% on-year to GBP1.38 billion from GBP901 million. At constant currency, revenue was 60% higher.
In North America, Rentokil said it achieved 2.2% organic revenue growth, while the Europe region, which includes Latin America but not the UK, saw 9.5% growth.
In the UK & Sub Saharan Africa division, organic revenue growth totalled 5.2%. In the Asia, Middle East, North Africa, and Turkey region, organic growth amounted to 8.9%. Finally, in the Pacific division, organic revenue growth amounted to 7.6%.
North America was the organic growth laggard for Rentokil, and the company said the outlook there is tricky.
"In North America, we remain mindful of the macroeconomic backdrop. Near-term market uncertainty means that the region's full year performance is anticipated to be marginally below our previous expectations," it cautioned.
It now predicts a North America adjusted operating margin range of 18.5% to 19.0%, lowered from its 19.5% expectation.
At group level, however, it maintained its adjusted operating margin guide of 16.5%.
Rentokil's overall revenue got a boost from acquisitions in the third-quarter, including the USD6.7 billion Terminix deal it sealed around this time last year.
"Delivery of the Terminix integration plan has progressed well in the third quarter and the cost synergy programme is on track to meet full year guidance of USD60 million of pretax net [profit and loss] synergies. In the period we completed several important initiatives, including moving all of our 22,000 US colleagues onto the same Human Capital Management and payroll system. We remain confident in the significant benefits of the combination with Terminix and are on course with our integration plans," Rentokil said.
"The group has completed 31 bolt-on acquisitions in the nine months to the end of September with annualised revenues of [around GBP86 million]. In the third quarter we completed 7 deals - 6 in Pest Control and 1 in Hygiene & Wellbeing, with annualised revenues of [around GBP7 million]. This includes highly targeted acquisitions to support expansion in growth 'Cities of the Future', including those in Indonesia, China and Brazil. We continue to execute on a substantial pipeline of additional, high-quality opportunities."
Rentokil shares were 14% lower at 512.80 pence each in London on Thursday morning.
Edison analyst Neil Shah commented: "While there is some market uncertainty in North America, the company's focus on managing inflationary pressures and its strong cash generation support its financial stability and debt reduction goals. With the bedbug outbreak continuing to ruffle feathers across the UK and an unexpected wave of unseasonably warm October weather, Rentokil finds itself in the ideal position to step in and reclaim the comfort and well-being of households nationwide."
By Eric Cunha, Alliance News news editor
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