FirstGroup cuts profit outlook due to "challenging" environment

Shares in transport operator FirstGroup slid on Thursday after it lowered its operating profit guidance for the current financial year amid a challenging trading environment.

In the three months to 26 December, revenue dropped 9.5% at constant currency. The company said this reflected changes to the rail franchise portfolio and the number of First Student operating days due to the timing of the school calendar.

FirstGroup said that excluding these effects, which it had already warned about, revenues were up 0.9% at constant currency.

It said progress on the transformation plans in the third quarter was mitigated by a challenging trading environment, with revenues in First Bus hit by lower-than-expected high street footfall due to exceptionally wet weather and flooding.

In addition, costs at its US school bus division, First Student, rose due to an acute driver shortage in certain locations.

Chief executive Tim O’Toole said: “While these issues have slightly moderated our trading performance in the period they are not of a magnitude to materially affect our multi-year transformation plans, which we expect to deliver significantly improved cash generation in our next financial year as planned.”

Nomura retained its ‘neutral’ rating on the stock, saying: “The expected consensus downgrade (close to our level) is a disappointment, although the market should have been expecting some impact from the weather.”

It added: “We continue to believe that the potential catalyst of margin accretion related to the divisional transformation programmes is equally offset by concerns around speed of delivery and, following today’s update, near-term trading.”

At 1231 GMT, shares were down 9.5% to 92.60p.