FirstGroup shares fall 11% amid North America woes

Shares of Aberdeen-based global bus and rail giant FirstGroup fell more than 11% after it said in a trading update that its Greyhound’s long-haul business in the US has been affected by intensifying airline competition, including in the key holiday season.

First Group, which also runs yellow school buses in the US, said all three of its North American divisions encountered “extremely challenging” weather conditions in January.

FirstGroup makes more than half of its revenues in the US.

“As a result, the group’s outlook for adjusted EPS (earnings per share) is slightly reduced overall, but there is no change to management’s expectation of substantial cash generation for the year,” said the Aberdeen firm.

FirstGroup CEO Tim O’Toole said: “We reached an important milestone in the period with our long-dated bond portfolio beginning to mature, allowing us to significantly reduce our interest burden by starting to refinance and rebalance the group’s debt.

“We are pleased by the support shown in the credit market for our improved financial profile and disciplined strategy.

“In the period First Bus has made encouraging margin progress as we benefit from our cost efficiency actions and revenue growth, while our First Rail franchise portfolio continues to generate value for the group despite infrastructure challenges.

“First Student’s momentum continues to be tempered by the strength of the US employment market, with no easing of the driver shortages experienced in recent years, while First Transit has taken a number of actions to help restore margins in the second half as planned.

“Although Greyhound’s point-to-point business continues to grow, this was more than offset by significant reductions in long-haul volumes in the period.

“Our North American businesses were also tested by the severe snowstorms which affected the Atlantic seaboard from Nova Scotia down to Florida in January 2018.

“Notwithstanding the mixed trading picture in the period we continue to expect substantial cash generation for the year as a whole.”

Liberum analysts said the trading update was disappointing, writing that difficulties in the last few months would wipe out the benefits FirstGroup would have received from lower corporate tax rates in the US, where it makes more than half of its revenues.

“Given that this (the tax changes) should have led to an approximate 9 percent uplift to earnings per share, the apparent reduction in the full-year outlook despite this is especially disappointing,” said Liberum analyst Gerald Khoo.