John Menzies, the Edinburgh-based baggage handler, saw its shares fall heavily today after it warned that its full-year profits would fall short of target because of disappointing sales of magazines and sticker albums.
The group said the outlook for its Menzies Aviation cargo and baggage handling business was “positive”, boosted by a recent five-year contract with Hong Kong-based airline Cathay Pacific, covering five sites across Australia and New Zealand.
However, it said its distribution operation continued to face a “poor” trading environment, having suffered an 11.4 per cent drop in magazine revenues for the first six months of the year.
A decline in magazine readership has been exacerbated by the closure of a number of print titles – including Auto Trader and Easy Living – this year, and Menzies said the tough conditions “continue to prevail”.
In a trading update covering the four months to the end of October, Menzies said second-half results at its distribution division, which serves 25,000 retail customers across the UK, would also be hit by “disappointing” returns from sticker collections and weaker-than-forecast seasonal sales at its marketing business, which encompasses direct mail and face-to-face promotional activity.
As a result, the company, headed by chairman Iain Napier, warned that profits for the full year would fall short of its expectations, sending its shares down 52.5p, or 6.41 per cent, to end the day at 767pp.
The firm added: “Given the continuation of difficult trading conditions within distribution, we now expect the current year results for the group, at constant currency, to be slightly lower than previously expected.”
In July last year, Menzies Aviation announced plans to restructure its UK cargo business and close operations at four airports including Glasgow, Birmingham, East Midlands and Manchester, in order to focus on London Heathrow.
The group has also closed its loss-making Chicago cargo handling business.
Although overall cargo volumes were down 14 per cent in the third quarter, like-for-like tonnage dipped just 3 per cent, which Menzies said was in line with its predictions.
Mike Murphy, an analyst at house broker Numis Securities, said Menzies Aviation “continues to make progress and has good long-term growth opportunities”, but downgraded his rating on the group’s shares from “add” to “hold”.
Numis now expects Menzies to deliver a pre-tax profit of £53m for the full year, down from its previous £56m forecast, and lower than last year’s £54.5m figure.
The broker also trimmed its profit predictions for 2014 from £60m to £54.4m.
However, Shore Capital analyst Martin Brown, who rates the firm’s shares as a “buy”, said the contract with Cathay Pacific “should help offset the continued yield pressure Menzies Aviation is experiencing from its airline customers”.