Competition from air travel and bad weather in North America have forced bus and train operator FirstGroup (FGP) to downgrade its earnings guidance.

It doesn’t given an explicit number, merely saying the outlook for adjusted earnings per share is ‘slightly reduced’, adding that the business is still expected to generate substantial levels of cash in the current financial year.

The news causes FirstGroup’s shares slump by 10.2% to 86.3p, putting them at a two-year low.

WHAT’S GONE WRONG?

Its North American business Greyhound has lost out to the airline industry as many travellers have opted to go by plane due to cheap tickets rather than use a coach.

Like-for-like sales at Greyhound fell 2.8% between 30 September 2017 and 31 January 2018. They are now down 0.4% for the first nine months of its financial year.

Its First Student business saw severe snowstorms disrupt operations, partially offsetting the gains from raising prices. Like-for-like sales were up 0.3% in the four month period; and they are 0.9% down on a nine-month basis.

The First Transit division has suffered from lower service volumes in the Canadian oil sands region. Like-for-like sales were down 0.1% in the four month period, but up 2.6% over the nine months to the end of January.

UK RAIL FRANCHISE CONCERNS

Trading was stronger in the UK bus and rail operations. First Bus delivered 1.4% like-for-like passenger revenue growth, help by a strong start to the academic year for its student-focused services. It is also taking more payments via contactless means.

First Rail’s like-for-like passenger revenue growth was stable at 3.2%, says FirstGroup. It will need to do better in order to hit Shore Capital’s 4% full year expectation.

BALANCE SHEET REFINANCING

The company’s long-dated bond portfolio has started to mature, meaning it can refinance to reduce its interest burden.

The group has placed $275m in new long-term US private placement notes with a weighted average fixed coupon of 4.25%. It also intends to redeem a £300m 8.125% coupon bond in March.

FirstGroup says these refinancing activities will make £14m interest savings per year.

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Issue Date: 21 Feb 2018