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Menzies profits to miss expectations

The global aviation services business has warned that FY2019 earnings will miss expectations
July 5, 2019

Ahead of its interim results next month, John Menzies (MNZS) has warned that this year's profits will be weaker than anticipated, revealing that “disappointing” trading across the group in the face of weak cargo volumes and a reduction in scheduled flights had weighed on first-half performance. Full year earnings are therefore expected to be either flat or below last year's underlying operating profit of £55.1m.

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Having completed the disposal of its print media distribution segment last year, Menzies is now a pure aviation business, fully exposed to the challenges impacting the wider industry. “The overall aviation market is having a difficult year”, said chief executive Giles Wilson. “This is inevitably having an impact on our full year outturn.” Weaker passenger demand and industry overcapacity has led some airlines to trim their flight schedules. As the group has struggled to adapt its labour force as rapidly, this has hit profits.

Softer cargo volumes were initially flagged back in March alongside 2018 full year results and although a May AGM statement noted some improvement, the weakness has persisted. According to air cargo market database WorldACD, the global total chargeable weight for cargo declined by 5 per cent year-on-year in May, a reduction larger than the combined decline of the four previous months. As the negative trend continues, analysts there concluded that it was "difficult to believe that the year will recover from its dismal start”.

The group is hoping previously announced changes, including efforts to revamp its commercial offering, can underpin a recovery. A cost rationalisation programme is expected to deliver at least £10m of savings, the majority of which will materialise in 2020. However, Berenberg noted this represented less than 1 per cent of the overall cost base.

Peel Hunt has revised its forecasts downwards, primarily driven by the decline in higher margin cargo services. It now anticipates adjusted pre-tax profit of £41.4m and EPS of 34.9p in 2019, from £44.1m and 37.5p in 2018.