John Menzies issues warning over aviation profit

Aviation services and newspaper distribution group John Menzies warned on annual profits in its aviation and ground handling operation due to regulatory changes.

Following the announcement, the Edinburgh-based firm said it would address the problems in the aviation division and revealed that the managing director of Menzies Aviation, Craig Smyth, will leave the division immediately.

In a trading update for the three months to October 31, Menzies said aviation revenue was 8% higher than the previous quarter on a constant currency basis.

But it said full-year profit would be “materially below” management forecasts due to the loss of an important aviation contract in Colombia, disappointing cargo returns in Australia and regulatory changes at several domestic airports, resulting in lower margins.

John Menzies is better known for its chain of newsagents in the 1990s, which was sold to WHSmith. However, the company’s aviation division now accounts for a far larger portion of Menzies’ total revenue.

Menzies said its newspaper distribution business continued to trade in line with its expectations. Overall sales values from both the magazine and newspaper categories were better than anticipated and cost-cutting initiatives stayed on track.

In a comment released on Wednesday, Liberum changed their outlook for John Menzies by attributing a buy recommendation to the firm, despite the profit warning for all company operations. "We...anticipate a material downgrade to EBIT which will be magnified at EPS by higher tax rate (mix) and modest financial leverage."

The broker outlined expectation for consensus to fall by 10-15% for 2014 and 15-20% for 2015. The shares have already been weak in anticipation to the news at around -30% YTD, and according to Liberum, shares are expected to take a further tumble today.

As of 11:53 on Wednesday, the company’s share price slumped 25.18% to 364.20p per share.