Rentokil’s Earnings Call: Growth Amid Challenges

Rentokil ((RTO)) has held its Q4 earnings call. Read on for the main highlights of the call.

During Rentokil’s recent earnings call, the company presented a mixed sentiment, highlighting robust international growth and improvements in customer and colleague retention. However, these positive aspects were overshadowed by significant challenges in North America, including lower-than-expected revenue growth, profit declines, and integration complexities. The company is actively implementing strategic changes to address these issues, but the overall sentiment reflects the considerable challenges that remain.

International Revenue Growth

Rentokil’s international businesses outside of North America demonstrated strong revenue growth of 8.2%, with organic revenue contributing 4.7%. The Pest Control segment showed particularly strong organic growth at 5.3%, underscoring the company’s successful expansion efforts in these regions.

Customer and Colleague Retention

The company reported a 2.4% increase in colleague retention, effectively reducing recruitment needs by approximately 1,000 people. Additionally, customer satisfaction saw a boost with a one-point increase in the Net Promoter Score, and customer retention improved by 50 basis points, reflecting positively on Rentokil’s service quality and employee engagement strategies.

Satellite Branch Expansion

Rentokil opened 10 satellite branches in Q4, with plans to exceed 500 locations, including satellites. This expansion is part of a broader strategy to enhance local presence and operational efficiency, aiming to better serve customers and streamline operations.

Workwear Business Performance

The French Workwear business reported a revenue growth of 7.1%, all organic, with adjusted operating profit increasing by 8.6% and margins reaching 17.7%. This performance highlights the strength and resilience of Rentokil’s Workwear segment in the competitive market.

International Business Growth

Rentokil’s international revenue grew by 8.2% to GBP 2.2 billion, with 4.7% organic growth driven by Pest Control and Workwear. The Europe and LatAm regions experienced a 5% increase, with adjusted operating profit also rising by 5.7%, showcasing the company’s effective international strategies.

North America Underperformance

In contrast, North American revenue grew by only 1.3%, with organic growth at 1.5%. Adjusted operating profit declined by 7% due to below-plan revenue growth and higher in-year investments, highlighting the challenges faced in this key market.

Profit Decline and Margin Reduction

Rentokil reported a 7.1% decline in adjusted operating profit to GBP 860 million, with a corresponding margin reduction of 130 basis points. This decline reflects the financial pressures and inefficiencies the company is working to overcome.

Cost and Investment Inefficiencies

The company acknowledged that a portion of its 2024 investments did not yield optimal effectiveness, leading to suboptimal sales and marketing returns. Rentokil plans to redirect these investments in 2025 to improve outcomes.

Integration Challenges

The integration of Terminix has been complex, leading to periods of disruption. The program is expected to be complete by the end of 2026, with significant cost savings anticipated post-integration, indicating a long-term strategic focus.

Weak Q1 Start and Lead Generation Issues

Rentokil’s Q1 2025 is off to a slow start due to weak lead flow, adverse weather, and the leap year effect. The company identified lead generation and sales conversion as areas needing significant improvement to meet its growth targets.

Forward-Looking Guidance

Rentokil provided guidance for 2025, reporting a revenue of GBP 5.6 billion in 2024, marking a 3.9% increase with organic growth at 2.8%. Despite North America’s underperformance, the company remains optimistic about meeting market expectations for 2025. Rentokil aims to enhance lead generation, improve sales conversion, and expand its branch network to over 500 locations, including new satellite branches. The company prioritizes organic investment, bolt-on acquisitions, and a progressive dividend policy, with a target net debt-to-EBITDA ratio of 2 to 2.5x.

In summary, Rentokil’s earnings call reflected a mixed sentiment with strong international growth and improvements in retention metrics, contrasted by challenges in North America. The company is committed to addressing these issues through strategic changes and remains optimistic about its future performance, aiming to meet market expectations for 2025.