Royal Mail share price slides as group trims upper end of profit guidance

Shares in Royal Mail Group (LON:RMG) have fallen deep into the red in London this morning as the privatised postal operator lowered the upper end of its profit guidance and warned that letter volumes would decline more than previously expected. The update marks another blow for the mid-cap company which warned on profits in October last year.

As of 08:47 GMT, Royal Mail’s share price had lost 9.41 percent to stand at 272.40p. The shares are significantly underperforming the broader market, with the mid-cap FTSE 250 index having added 0.31 percent to 18,592.95 points so far this morning.

Royal Mail posts results

Royal Mail announced in a statement this morning that its revenue had inched two percent higher in the nine months ended December 23. UKPIL revenue, however, dipped one percent during the reported period, with a six-percent drop in letter revenue offsetting a six-percent rise in parcels.

“Overall, our recent trading performance was broadly in line with our expectations,” the postal operator’s chief executive Rico Back commented in the statement. “We now confirm that we expect to deliver adjusted Group operating profit before transformation costs of £500-530 million for 2018-19.” The company had previously expected profit to come in between £500 million and £550 million.

Back further cautioned that addressed letter volume declines, excluding elections, were likely to be outside the company’s forecast medium-term range next year, with business uncertainty impacting volumes.

Analysts weigh in on group

Proactive Investors reports that Liberum reaffirmed Royal Mail as a ‘sell’ following today’s update, seeing downward pressure on consensus forecasts for next year due to the cautious guidance on UK letters volumes and GLS growth.

“Given the importance of understanding management’s long-term strategy to turn the business around, this is disappointing,” the broker pointed out, as quoted by the newswire, adding that “the hope must be that more radical options are being contemplated, requiring further time for planning and consultation”.

As of 09:24 GMT, Tuesday, 29 January, Royal Mail share price is 272.40p.