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A profit warning is expected to be on board when budget airline easyJet PLC’s () third quarter update touches down on Thursday.
The past few years have been tricky for Europe’s short-haul airlines, just ask the bosses at Monarch, Flybmi or Primera Air.
READ: Berenberg upgrades easyJet to ‘buy’ as it predicts pick-up in fares
Intense competition in the sector has kept prices low, while rising costs have put margins under pressure.
A June profit warning from Lufthansa flagged very weak short-haul revenue trends in the second quarterm, leading to conclude that the problem is not excessive supply, but rapidly weakening demand.
expects this cautious theme to be repeated in easyJet’s trading update, which comes a few weeks after the carrier dropped out of the FTSE 100.
Analysts at the bank expect revenue per seat to have dropped 5.5% versus the same three-month period of 2018, although cost per seat is forecast to improve a little, largely due to fewer strikes.
A bolder predication is that easyJet will sound the earnings alarm: “We expect the company to set its FY 2019 [pre-tax profit] range below the most recently guided c£435mln level.
“We estimate £408mln, slightly below the current consensus of £417mln. Our estimate implies a c£90mln H2 improvement year-on-year.”
Easyjet shares hit a three-year low last month and while they have since rebounded more than 20% they still sit at almost half their level from last summer.
Royal Mail tackles low productivity
Similarly, Royal Mail Group PLC () has seen its shares fall two thirds over the past 15 months but rally around 7% since the start of June, ahead of the quarterly update pencilled in for this week.
In May this year, the postal service operator said it will cut its dividend 40% to pay for a new “turnaround and grow” strategy after profits fell 30% in the preceding year.
For the first quarter of the financial year, analysts at Jefferies project a 3% rise in quarterly revenue, driven by international parcels arm GLS and M&A, while UK parcel and letters division UKPIL declines 0.5% as letters drop 5% and parcel revenues climb 4%.
This reflects stable business confidence at the lowest level since 2009, a slowdown in online non-food retail sales and tough comparatives in advertising mail due to the introduction of General Data Protection Regulation (GDPR) on 25 May last year.
“Royal Mail’s biggest challenge is its low productivity of 50% below the sector average,” Jefferies said, with the ‘Journey 2024’ turnaround strategy seeking to restore profitability through parcel automation and targeting 15%-18% higher productivity.
“However, further measures and accelerating top-line growth are required to mitigate rising people cost inflation to >5% in our view, while re-nationalisation risk will likely keep potential investors on the sidelines.”
Anglo completes mining trio’s updates
PLC () will follow updates this week from two of its larger mining rivals.
PLC () reported a 3.5% drop in second-quarter iron ore shipments, while () said iron ore production was flat for the year to June, but that June’s output rebounded 12% month-on-month.
Anglo’s shares have performed the best of the trio over the past year and this week they have been boosted by better than expected Chinese industrial data.
Sports Direct delay
() was due to report on Thursday but has warned that the numbers will be delayed by up to five weeks as auditors grapple with the retailer’s increasingly complicated spreadsheets.
The Mike Ashley-bossed chain also warned that last year’s profits drop could be even worse than feared as it struggles to integrate House of Fraser.
There will be something for retail aficionados to chew over on the day, however, as UK industry sales figures for June are due to be released.
These numbers from the Office for National Statistics are likely to be distorted by a strong June last year when sales were boosted by warm weather and the FIFA World Cup.
For June, economists expect retail sales to be down 0.3% month on month, or 0.2% if excluding fuel.
Thursday July 18:
Trading updates: Royal Mail Group PLC (); Anglo American PLC (), (), easyJet PLC (), Thomas Cook PLC (), eve sleep PLC (), (LON:CRY); Hilton Food Group PLC ()
Finals: (), SDI Group PLC ()
Interims: PLC (), Aubioboom Group PLC ()
FTSE 100 ex-dividends: None
Economic data: UK retail sales; US weekly jobless; US Philadelphia Fed manufacturing index
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