ii view: ratcatcher Rentokil accelerates growth in North America

Third-quarter trading update to 30 September

• Revenue up 4.6% to £1.81 billion
• Adjusted North American revenues up 3.4%
• Net debt of $3.86 billion (£2.89 billion), down from £3.2 billion at the start of the year

Chief executive Andy Ransom said:

"We are encouraged by our performance in the third quarter as the overall positive trends we described at our interim results have continued into the second half. 

"In North America, it is pleasing to see the actions we have taken to improve sales execution and to evolve our digital marketing strategy are driving positive lead flow and overall sales momentum in the quarter. 

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ii round-up:

Rentokil Initial (LSE:RTO) today detailed an acceleration in sales growth at its core North American business, with the pest control and washroom services provider confident in achieving current full-year City forecasts.

Third-quarter adjusted North American sales to late September rose 3.4%, climbing from growth of 1.4% in Q2 and a gain of 0.7% in Q1. The USA generated almost three-fifths of total 2024 sales. Revenue for pest control improved 3.3%, up from a gain of 1.6% in Q2 and a rise of 0.5% in Q1. Pest control generated almost four-fifths of 2024 sales. 

Shares in the FTSE 100 company soared 11% in UK trading having come into this latest news little changed so far in 2025. The FTSE 100 index is up almost 16% over that time. US headquartered hygiene chemicals maker and fellow pest control services provider Ecolab Inc (NYSE:ECL) are up by close to a fifth year-to-date. 

Rentokil is today the biggest provider of pest control services across North America, a position which follows troubled trading in the aftermath of its 2022 acquisition of US rival Terminix for $6.7 billion (£5.8 billion).

Management actions to improve performance following the acquisition have included the establishment of door-to-door sales and the rollout of satellite offices across the USA to 139 from 100 in June. 

The group’s staff retention rate has improved to 81.8% from 80.7% back at the end of June. Current chief executive Andy Ransom is to retire at the group’s AGM early May. 

Earlier in the year, Rentokil sold its relatively small French based maker of workwear for $480 million to help aid a concentration on the core business.  

Total group-wide sales for the quarter rose 4.6% to $1.81 billion, up from a gain of 3% in the first half. Sales for Hygiene & Wellbeing, stripped of acquisitions, improved 3% compared with a gain of 0.9% in the first half. 

Annual results are scheduled for 5 March. 

ii view:

Employing over 65,000 people, Rentokil Initial brands include Rentokil itself for Pest Control, Initial for washroom services and Ambius for plant care services. Headquartered in Crawley, the US generated most 2024 sales at 58%, with other countries of note including the UK and France each at around 7%, Australia at almost 4% and Spain and India at just over 1% each. 

For investors, demand can prove susceptible to the weather and the impact of hurricanes. The sale of the Workwear business does reduce business diversity. Large company acquisitions such as that for Terminix are not without risk and can prove problematic, while costs for businesses generally, and particularly wages, are now elevated following a period of heightened inflation.

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On the upside, initiatives focused on the group’s North American pest control business appear to be bearing fruit. The previous sale of the workwear division does simplify the business, allowing an increased focus on pest control. Group net debt has fallen aided by the Workwear sale, bolt-on acquisitions have included India’s second-largest pest control company in 2024, while a forecast dividend yield of around 2% is not to be overlooked.  

For now, while cautious investors may still prefer waiting for evidence of profit recovery, ongoing management initiatives and improved sales at the core North American pest control business are clearly having a positive impact on the business. 

Positives: 

• Diversity in both business type and geographical location
• Pest Control is a largely non-discretionary and essential service

Negatives:

• The weather can influence performance
• Currency movements can impact

The average rating of stock market analysts:

Strong hold