Rollins (NYSE:ROL) shares plunged Thursday after British rival Rentokil (LON:RTO) warned of lower U.S. demand.
Rentokil said that in the third quarter, it experienced a softer consumer demand environment in North America. In addition, it saw lower demand for chemical products for use in pest control and in turf and ornamental end markets in North America.
Furthermore, the company said that while customer retention rates remained resilient, new residential customer acquisition was challenged by the macroeconomic backdrop and a softer consumer demand environment.
In reaction to the news from its competitor, ROL shares fell more than -8% in Thursday's session. The move adds to its recent slide in the last three months, which now stands at -26%. So far in 2023, it is at -10%.
ROL was recently the subject of a short report from Spruce Point Capital's Ben Axler, in which the firm said it sees a potential 30% to 40% downside risk in Rollins. In its October 4 report, Spruce Point said it believes there are "multiple growing long-term macroeconomic and microeconomic issues" that will likely pressure Rollins’ historical growth and margins.
Following the RTO release, Spruce Point reiterated that view, adding that ROL's share price is more exposed to the North American consumer demand softness than Rentokil. The short seller said this is because ROL is a pure play on pest control, it has been "significantly underspending in digital marketing, it has greater customer churn, and the stock is trading at an undeserved premium."
Meanwhile, Citi analysts said in a note that with Rollins’ Q3 results due next Wednesday, we will "see if the growth gap (1H: 4.4%) between these rivals has widened."
ROL shares are down a further 1.3% so far in premarket trading on Friday.