Rail lift for FirstGroup but tough lesson in US

Vernon Barker is managing director of First Transpennine Express. FirstGroups rail division has performed ahead of its expectations.

Vernon Barker is managing director of First Transpennine Express. FirstGroups rail division has performed ahead of its expectations.

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A STRONG UK train and bus performance failed to offset pressures at FirstGroup’s US school bus division.

The group’s shares closed down 3.5 per cent last night, a fall of 12.8p to 347p.

FirstGroup said that margins at First Student, which operates school buses in the US and Canada, would remain under pressure into 2011/12.

The news overshadowed a robust performance from the UK rail businesses, which include the TransPennine Express connecting Yorkshire to Manchester, Liverpool and the Lake District, and Hull Trains, the intercity train service between Hull and London.

The rail business performed ahead of the company’s expectations with like-for-like passenger revenues expected to be 5.1 per cent higher in the year to March 31.

Analysts at Panmure Gordon said in a note: “Budgetary pressures experienced by school boards continue to create a difficult trading environment for the student business in North America.

“The company has also experienced higher contract labour costs, and margins are under pressure.”

In a trading update yesterday, FirstGroup said: “We are encouraged by improving trends in UK rail and Greyhound and a continued steady performance in our UK bus and transit operations.”

The company expects like-for-like annual passenger revenue growth of 1.4 per cent at its UK bus operation, which runs services in towns and cities across the UK including Leeds, Bradford, York, Halifax, Sheffield, Rotherham and Doncaster.

The bus division operates a fleet of 8,500 vehicles and runs one in five of all local bus services.

Shares in FirstGroup have fallen eight per cent in the last three months.

The company said First Student’s disappointing US performance followed school budget cuts, exacerbated by recent severe weather.

The yellow bus business runs 70,000 vehicles across the US and Canada. Labour costs have risen partly from route changes as schools look to reduce their overall transportation costs.

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.

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

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