Executive chairman Wolfhart Hauser will take the hot seat while a new boss is found, with finance chief Matthew Gregory to be appointed interim chief operating officer.
O’Toole admitted that the “time is right” to step aside, as the firm posted a dismal set of figures.
The Aberdeen-headquartered company, which is behind Great Western Railway, booked a £327 million loss in the year to 31 March, which compares to a profit of £152.6m in 2017.
FirstGroup was dragged down by a £277m impairment charged linked to America’s Greyhound bus service, which it also operates.
Greyhound has been struggling amid the rising popularity of low-cost airline competition, the firm said.
“Greyhound’s significant short haul and express growth was more than offset by declines in long haul demand as a result of intensifying competition from the ultra low cost airlines, which are bringing significant additional aircraft capacity into operation while also connecting to a growing number of secondary airports.
“The growth in these businesses represents a meaningful shift in US travel patterns. Our ability to mitigate these revenue challenges through further cost efficiencies is limited by ongoing increases in fleet maintenance and driver costs, resulting in a significant reduction in Greyhound’s margin.”
In addition, the firm was stung by an onerous contract provision linked to the TransPennine Express rail franchise.
Revenue increased to £6.4 billion compared to £5.65bn and FirstGroup’s preferred measure of adjusted operating profit dropped from £339m to £317m.
Hauser said the focus would be on sorting out Greyhound’s issues.
“The board is examining all appropriate means to mobilise the considerable value inherent in the group. Initial actions from its evaluation are under way, including conducting a full external review of Greyhound’s business model and prospects, which will conclude in the coming months.”