Investing.com -- Rentokil's (LON:RTO) shares rose on Thursday, after the company posted a 2.6% increase in third-quarter organic revenue and a management overhaul in its North American operations.
At 6:21 am (1021 GMT), Rentokil was trading 9.2% higher at £372.40.
The trading update showed mixed results, with the North American division, which contributes a substantial share of Rentokil's overall business, underperforming expectations.
Rentokil reported a 3.6% overall revenue growth at constant exchange rates, with organic growth accounting for 2.6%.
The company said that the North American market, particularly within its pest control segment, posted only modest organic growth of 1.4%.
“Though management ‘see opportunities for organic to improve in 2H24’, guidance for North America organic growth remains at +1%; prudent in our view given hurricanes will likely have had some modest impact on the group recently,” said analysts at Barclays (LON:BARC) in a note.
Rentokil appointed a new Chief Marketing Officer and Chief Operating Officer for the region, while also searching for a permanent replacement for the departed North American CFO, a role currently filled by an interim internal candidate.
These leadership changes are part of a broader strategy to revitalize Rentokil's North American business, particularly in light of the sluggish lead generation and conversion rates seen earlier in the quarter.
The company cited improved digital leads in September as a sign of recovery but recognized that the slower-than-expected sales and higher costs throughout the summer left the business facing operational challenges.
To address these issues, Rentokil has implemented a series of initiatives to streamline operations and boost organic growth in the coming months.
Cost management was another key theme of Rentokil's update. The company has been grappling with inflationary pressures and higher-than-anticipated material costs, particularly in its North American business.
As part of its response, Rentokil has reduced its workforce by about 250 employees, aiming to rebalance its cost base.
The company expects further cost-saving measures to roll out by year-end, helping to offset some of the financial strain from the North American underperformance.
Rentokil’s integration of Terminix, which it acquired in 2022, continues to progress smoothly. Although the synergy delivery has been delayed by 2-3 months due to a review of its satellite branch pilot and new pay plans, Rentokil remains optimistic about the long-term benefits of the acquisition.
The company said that there had been minimal disruption during branch migrations, and customer retention remained stable, a positive sign for the ongoing integration efforts.
“Despite the lack of visibility, we see the operational issues as fixable over time, think the medium-term prize remains high and estimate the US business is now in the price for sub c.10x P/E,” said analysts at RBC Capital Markets in a note.
While Rentokil’s performance in North America has been underwhelming, the company’s growth in other regions remains strong.
Europe, the UK, and Asia all reported organic revenue increases of more than 4%, with the hygiene and wellbeing segment performing particularly well, especially in France, which saw a 7.4% rise in its workwear category.
Despite some challenges, Rentokil maintained its full-year financial guidance, reaffirming its expectations for revenue growth and stable margins.
“No change to FY24 outlook, but 2-3 month synergy delay now expected in FY25 means consensus may continue to drift lower, we think,” said analysts at Jefferies in a note.