Shares of Rentokil Initial PLC (GB:RTO) collapsed today after the company issued a profit warning for FY24 amid a slowdown in its key market, North America. According to the latest update, Rentokil expects the adjusted PBTA (profit before tax and amortization) for this year to be around £700 million, falling short of analysts’ expectations of £776 million and last year’s figure of £766 million. Following the update, RTO stock went down by 17% as of writing.
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This is the third time in the past year that the company has warned regarding challenges in its North American operations.
Rentokil Highlights Challenges in North America
Rentokil pointed out challenges in its North American business, impacted by economic headwinds and weakening consumer demand. Sales in North America during July and August were below expectations. Consequently, the company projects organic revenue growth of roughly 1% for the second half of the year.
For FY24, North America’s adjusted operating profit margin is now expected to be around 17.2%, while the group’s adjusted operating profit margin is projected to be about 15.5%. Additionally, the issues in the North American business are expected to reduce Rentokil’s adjusted operating earnings by about £50 million in FY24.
The region contributed 60% of Rentokil’s revenue in 2023 and remains crucial for the company. Rentokil is implementing measures to revive its North American business. Under its Right Way 2 plan, the company aims to improve top-line growth via enhanced lead flow, sales conversion, and customer retention. Rentokil is also focused on avoiding cost overruns through better inventory and labour management.
Rentokil’s profit warning also came as a setback for activist investor Nelson Peltz. Peltz’s Trian Partners announced a stake in the company in June, with plans to explore ways to enhance shareholder value.
Is Rentokil a Good Stock?
Today, analyst Annelies Vermeulen from Morgan Stanley confirmed her Hold recommendation on the stock, predicting a 39.8% upside potential in the stock price.
Overall, RTO stock has received a Moderate Buy rating based on six Buy and four Hold recommendations. The Rentokil share price forecast is 557.0p, which is 44.2% higher than the current price level.
