Meggitt warns over 2020 hit from 737 Max grounding and coronavirus
Aerospace engineering group Meggitt has warned over a sales hit from the grounding of Boeing’s 737 Max planes and the impact of the coronavirus outbreak.
The business saw shares come under pressure as it said group revenue growth is expected to at least halve this year and warned that the impact is likely to be felt “beyond 2020”.
It is forecasting sales growth of between 2% and 4% in 2020, down sharply on the 8% growth reported in its full-year results, while it also sees profit margin progress being held back.
Shares fell as much as 6% before settling around 2% lower as the alert overshadowed an otherwise robust set of results for 2019, with underlying organic pre-tax profits up 8% to £370.3 million.
Meggitt said: “Sector-specific factors including the production halt of the 737 Max and supply chain disruption, as well as the wider macroeconomic impact of Covid-19, are expected to hold back margin progression in the short term.”
The company is the latest to flag up coronavirus concerns as firms worry that the outbreak will lead to a sharp reduction in global economic growth and a knock-on effect on demand.
But Meggitt, based at Bournemouth Airport in Dorset, has also been hampered by the grounding by Boeing of its 737 Max fleet last March after two fatal crashes – which is now expected to remain in place until at least mid-2020.
Despite the headwinds this year and next, Meggitt said it still expects revenue growth in 2021 in the low to mid-single digits and is pencilling in a rise in profit margins, albeit both down from its 2019 performance.
Results for last year showed statutory pre-tax profits jumping 33% to £286.7 million and orders 10% ahead at £2.5 billion.
Sales were ahead in all three of its major markets – with 8% growth in civil aerospace, 11% in defence and 10% in energy.
Chief executive Tony Wood hailed a better-than-expected set of results and said Meggitt is now a “more focused, higher-quality and more resilient business”.
“We delivered good progress on our strategic initiatives, helping offset the investment made at our fast-growing advanced engine composites sites and headwinds caused by adverse mix, supply and trading environment conditions and the grounding of the Boeing 737 Max,” he said.
Meggitt also separately announced that chairman Sir Nigel Rudd will step down by 2021, but remain in post until a successor is appointed.
He has chaired the FTSE 100-listed group since 2015.
Helal Miah, investment research analyst at The Share Centre, said: “These good figures reflect strong performance in the respective end markets – civil aerospace, defence and energy – as well as property transactions and a large pension contribution in the prior year.
“However, the production halt of Boeing’s 737 Max is the key factor for which the group is a supplier to, and the ongoing impact of Covid-19 on the global economy and travel industry are dark clouds on the horizon.”