Tranz Rail's third quarter sales below forecast

10.30am

In a continuing saga of bad news Tranz Rail today revealed its third quarter sales and profit were below forecasts.

Under the new continuous disclosure regime, the company said today that revenue for the March quarter was $157.2 million, some $11.3 million below forecasts.

The fall in revenue, which it blamed on "climatic conditions" had lowered ebit (earnings before interest and tax) earnings to $19.1 million - $10.2 million below the forecast of $29.3 million.

On January 29 when it reported its second quarter result, the company said its profit was on track.

During the March quarter, rail operations were badly affected by line closures due to hot weather that caused buckling of rail lines.

Tranz Rail shares dived immediately after the announcement by 12 per cent, or 11 cents, to an all-time new low of 84 cents.

"While the company has made significant advances in its core rail freight business, the third quarter has been impacted by climatic conditions and an associated downturn in the rural and commodity sectors," chief financial officer Wayne Collins said.

He said Rail Services Group revenue had been affected by the recent drought conditions on milk production and fertiliser, the Kinleith strike, and lower coal volumes due to congestion at Lyttleton port and service issues related to the Otira tunnel.

In addition, improvements in equipment utilisation by the company's Distribution Services Group had resulted in lower internal revenue.

The Interisland Line had been affected by Air New Zealand's discount fare structure and by sea competition from Strait Shipping's vessel Bluebridge.

Rail Passenger Group had been affected by reduced passenger volumes and reduced subsidies as a result of the January heat buckling issues, Mr Collins said.

He said notwithstanding that third quarter results had fallen short of expectations, ebit was $4.7 million ahead of the corresponding period last year.

In light of the third quarter results and a possible slowdown in forestry traffic, Tranz Rail said it was lowering its June year forecasts. Revenue is now forecast at $613 million, down $11 million on the previous forecast of $624 million.

On a like for like basis, June year-end ebit is now forecast at $47 million compared to the previous forecast of $53.1 million with a possible $2 million variation either way.

Forsyth Barr Frater Williams broker Alan Wills said: "this is the last straw really".

He said it was a continuation of guidance not being met.

"While a lot of these things are out of the company's control it just undermines the market's confidence."

The company is expecting a continuation of the third quarter conditions in bulk products with flow-on effects of the regional drought.

A possible increase in coal volumes due to greater use of coal by power generators, had not been factored into the forecasts.

Tranz Rail's Interisland Line is expected to remain in line with previous forecasts with cost savings through the early release of the Lynx and the deferral of the Aratere dry-dock offsetting year to date revenue losses.

Rail Passenger Group revenue is forecast to reduce by $1.1 million and capex correspondingly to be reduced by $2.2 million as a result of the deferral of the refurbishment of the English electric units in Wellington.

Tranz Rail said it had a number of asset sales underway which if completed could increase the bottom line profit to above $60 million.

These include the sale of the Wellington Railway Station, which the company said it was negotiating.

Mr Collins said Tranz Rail was "pleased to record good progress in improving the service delivery of its core rail freight business".

"In addition the company has been able to halt and begin to turn around the long-term decline in its freight rates. The company also continues to record improvements in ontime arrivals and departures, cargo handling errors, locomotive availability and time loss from speed restrictions."

- NZPA