John Menzies warns over full-year earnings amid aviation market challenges
Aviation services business John Menzies warned on Friday over its full-year earnings, as it pointed to challenges in the wider aviation market.
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John Menzies Plc
607.00p
16:30 19/03/24
In a half-year update ahead of its interim results in August, the company said trading has been disappointing across the group, as weak cargo volumes and flight reductions take their toll.
As a result, its first-half performance has been below expectations and the company now believes that full-year earnings will not exceed last year.
Chief executive officer Giles Wilson said: "The overall aviation market is having a difficult year. This inevitably is having an impact on our full year outturn. However, I firmly believe in the structural growth dynamics within our industry and all historical data points to recovery.
"Accordingly, I believe we remain well placed to prosper. Since my appointment I have taken a number of actions to right size the business, we have also restructured our commercial teams to ensure we are ready to seize opportunities as they present themselves."
John Menzies said it has been implementing several actions, including a cost rationalisation programme that will deliver at least £10m of cost savings, the majority of which will materialise in 2020.
"Overall the board believes that the medium and long term fundamentals of, and prospects for, the business are sound and remain confident that the actions being taken in the current year underpin the board's expectations for 2020," the company said.
At 0950 BST, the shares were down 15% at 388p.
Shore Capital noted "the well-publicised trading difficulties" of many airlines at present, including some failures and issues compounded by technical challenges such as those being faced by Boeing.
"We expect to reduce our earnings forecasts by circa 10% at this juncture," it said.
"The challenges being faced by the air services industry at present extend from technical and environmental factors, to loads and to cargo traffic impacted by global trade concerns. However, challenges also provide opportunities and we note that Menzies has been successful through the first half in contract renewals and awards. We expect this to continue despite short-term ‘volume’ disappointment. Aviation at a fundamental level remains a structural growth industry and we believe that Menzies remains well placed to capitalise on this with proven service capabilities and a granular global client list."
Russ Mould, investment director at AJ Bell, said: "The aviation services group has been caught up in the airline sector’s current turmoil and the fallout from concerns about slowing global economic growth.
"Airlines have been experiencing a surfeit of problems, from technical issues grounding planes to the need to reduce capacity due to excess competition. Cargo volumes have also been weak as companies start to become more cautious about economic conditions.
"Giles Wilson is only one month into his new permanent role as chief executive and so he’s not going to be best pleased about starting the new chapter of his career with a profit warning.
"However he gives an optimistic look at the long-term picture and to Menzies’ credit it has been winning quite a few contracts in recent months.
"The perils of being a service company means you are always reliant on customers not having their own problems.
"Menzies has control over delivering its service, such as making sure the work is done as efficiently as possible. Yet it has no control over what its clients are doing or the flow of cargo it handles. That means Wilson can only do so much to keep Menzies ticking over in hard times."
Berenberg cut its price target on buy-rated Menzies to 700p from 800p after the update, but said it remains "confident in the long-term equity story" for the business despite the headwinds highlighted.