Freak storms derail First’s American turnaround

Bus and rail firm FirstGroup took a £14 million profit hit today after months of storms buffeted the performance of its North American businesses.

Picture: Getty

The Aberdeen-based company said that First Student, which runs yellow school bus services in the US, is expected to have suffered a 1.8 per cent fall in annual revenues amid unprecedented school closures during a period of widespread snow storms.

Its Greyhound coach business looks set to see full-year revenues fall by 2.9 per cent after the severe weather – which swept across North America from December and continued into March – caused significant disruption. FirstGroup said overall operating profit for the year to the end of March was expected to be in line with forecasts, excluding the £14m impact of the US weather.

The group had warned in January that the weather would result in First Student seeing slower-than-expected progress towards profit margin targets in its turnaround plan. But it added that the division was “progressing plans to improve contract portfolio pricing, returns and deliver further cost savings”.

In a statement on strategy earlier this year, the firm said it aims to increase group revenue, excluding its UK rail business, at a faster rate and to improve margins at its First Student and UK bus units to double digit levels. It is targeting an overall post-tax return on capital employed of 10-12 per cent over the medium term. The group has faced pressure from one institutional investor to sell off its North American businesses.

The firm, which is due to publish full-year results on 21 May, said like-for-like passenger revenues from its UK bus operations were expected to improve by 1.8 per cent for the year, with good passenger volume growth.

Meanwhile, UK rail operations, which include First Great Western, First ScotRail and First Capital Connect, were likely to see a 5.9 per cent rise, also underpinned by an increase in passengers. Chief executive Tim O’Toole said: “We will deliver earnings growth this year, albeit suppressed by the historically severe weather, particularly in North America. We are broadly on track to achieve our medium-term targets and while we are encouraged by the progress made so far, there remains a significant amount of work ahead.

“Our priorities are clear and plans are underway to build on our market-leading positions and ensure the group delivers sustainable cash generation and value creation over the plan period and beyond.”

Analysts at Shore Capital said the profits hit from the weather was disappointing, but added a reference in the trading update to talks with the Department for Transport over a First Great Western franchise extension could prove “very significant”.

And Investec kept its “buy” recommendation on the shares, saying: “Whilst there are bumps in the road, we remain hopeful that management will be able to turn the business around.”