UPDATE 2-Stagecoach's upbeat outlook eases fears on UK bus industry

Mon Apr 23, 2012 10:30am EDT

* Stagecoach UK rail like-for-like sales up 8.8 percent

* Stagecoach UK bus like-for-like sales up 2.7 percent

By Abhishek Takle and Brenton Cordeiro

April 23 (Reuters) - Rail and bus operator Stagecoach Group Plc's positive forecast indicated that it was likely to fare better than rivals including FirstGroup, allaying fears that it would be hit by government cutbacks and economic weakness.

Stagecoach, which transports 2.5 million passengers a day, said all its units would at least maintain their level of profitability for financial year 2013.

UK's bus industry has come under pressure as austerity measures have forced the government and local councils to reduce subsidies to bus operators.

But Stagecoach reported that regional operations for its UK bus segment grew 2.7 percent in like-for-like sales.

The group's British bus operations have been under the spotlight ever since rival FirstGroup issued a profit warning at the end of March that triggered a spate of broker downgrades and wiped a third off FirstGroup's shares.

"(Stagecoach's) UK bus is not seeing the same margin pressure as First Group," Nomura's Andrew Evans said.

FirstGroup said last month that lower economic activity, particularly in Scotland and the North of England, hurt the performance of its UK bus business.

"We remain positive on Stagecoach," Gerald Khoo of Espirito Santo Investment Bank said.

"The shares have recovered some of the ground lost since the recent FirstGroup warning, but this trading statement has reassured us that there is no direct read across from the latter's problems."

National Express Group had also said it expected passenger revenue to continue to grow in its bus and coach divisions in 2012, as people opt to travel by bus due to higher fuel costs and more expensive rail travel.

U.S. BRIGHT SPOT

The U.S. market has been a bright spot for UK transport operators. National Express reported a 5 percent increase in North America revenue last month while FirstGroup said its U.S. school bus and Greyhound operations continued to perform well.

Stagecoach's North America bus business' like-for-like sales rose 14 percent in the 11 months ended March.

For the 48 weeks ended April 1, Stagecoach reported an 8.8 percent increase in like-for-like sales at its UK rail business -- its largest business -- which includes London commuter franchise South West Trains.

Stagecoach's shares were trading down about 1 percent at 249.1 pence at 1220 GMT on Monday on the London Stock Exchange.