FirstGroup suffers afters school buses stall

By THIS IS MONEY
Updated: 05:57 EDT, 11 March 2011

FirstGroup, the transport giant, saw its shares dip 5% after an update to investors included news of disappointing performance at its US school bus arm.

Slow lane: Budget cuts have hurt FirstStudent.

That outweighed robust trading on UK buses and trains. Updating investors on its performance ahead of annual results on May 11, FirstGroup said it expected to meet earnings targets for the year to March 31.

But the Aberdeen-based company said it had seen disappointing performance at FirstStudent – the school bus operator - following school budget cuts, exacerbated by recent severe weather.

Margins, which have been squeezed due to higher labour costs following route changes, are expected to remain under pressure this year, it added.

FirstGroup shares fell 5% despite improved trends in UK rail and its Greyhound coach operation, alongside a continued steady performance in UK buses.

It added: 'We remain encouraged by improving trends in some of our markets, however the trading environment for First Student remains challenging.'

The yellow bus business, which runs 70,000 vehicles across the US and Canada, has been battered by school boards continuing to face budget pressures.

And labour costs have risen partly from route changes as schools look to reduce their overall transportation costs.

The rail division, which runs the franchises Capital Connect, Great Western, ScotRail and TransPennine Express, grew passenger revenues by 5.1% over the financial year.

It added: 'We remain encouraged by the strong demand for services that has continued to develop throughout the course of the year.'

In the bus division, which operates a fleet of 8,500 vehicles and runs one in five of all local bus services, passenger revenues increased by 1.4% on a like-for-like basis.

Investec Securities left its profits forecast for this year unchanged at £288m but lowered its estimate for 2012 due to the ongoing school bus weakness. It now expects profits of £290m, down from £310.3m previously.