Flight Centre Travel Group Downgraded Its Profit Guidance, The Stock Plunged Over 11%

  • Apr 26, 2019 AEST
  • Team Kalkine
Flight Centre Travel Group Downgraded Its Profit Guidance, The Stock Plunged Over 11%

Flight Centre’s shares crashed on ASX after the company downgraded its profit guidance for the year ended 30 June 2019. The stock has lost 11.761% in a day-trade to close at $38.975 on 26 April 2019.

Due to the subdued trading conditions, Flight Centre Travel Group Limited (ASX: FLT) now expects FY19 underlying profit before tax (PBT) to range within $335million and $360million, below the $390million-$420million range it initially targeted when it released market guidance in October 2018.

The company stated that although the first half trading patterns continued into the second half with sales tracking at record levels, the Australian leisure results have not yet recovered in line with expectations as the challenging trading climate in Australia has continued to impact total transaction value (TTV) in the lead-up to the key May-June trading period.

The key initiatives taken by the company over the past two years had also come into the ambit of these adverse weather conditions causing disruption in the company’s growth. However, the company stated that changes are now embedded and additional plans are in place to address short-term market challenges relating to soft TTV growth, costs and margin contraction within the leisure business.

It includes the deployment of a new sales system (GDS) by Flight Centre, consolidation of brand structures, the introduction of a new wage model for its front-end sales staff and an ongoing review of its shop network. To date, the company has not realised the benefits that are expected to flow from these initiatives.

But on the bright side, Flight Centre has witnessed a strong outcome in the corporate travel sector globally and most key markets including the United States (USA), the United Kingdom (UK) and Asia.

FLT managing director Graham Turner said that “The USA business, which is now poised to become the company’s second largest business behind Australia in both profit and TTV terms, is on a strong growth trajectory. Thanks largely to this continued success in the US market, the broader North American business, which also includes the company’s Canada and Mexico operations, is now closing in on a profit in excess of $100million for FY19, which will be a significant achievement.”

However, the company expects its record profit contributions from international businesses to be offset by the losses in the “Other” segment of FLT’s accounts. This movement will reportedly be driven predominantly by decreased interest income following the recent cash payment of $211million in fully franked dividends, higher interest payments, increased global technology expenses, merger and acquisition costs and additional transformation costs.

The mid-point in the new guidance range - $347.5million - represents a 10% decrease on the record $384.7million underlying PBT achieved during FY18.

Mr Turner said, while overall results for FY19 would be disappointing, the company was well placed to deliver further growth in the future, given its brand and geographic diversity, its strong balance sheet and its ability to evolve to capitalise on new opportunities.


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