Meggitt warns of growth hit from 737 MAX difficulties, coronavirus

By Sarah Young

LONDON (Reuters) - Britain's Meggitt <MGGT.L> warned that future growth would be constrained by the halt to production of Boeing's <BA.N> 737 MAX aircraft and the economic impact of the coronavirus, knocking its shares.

For 2020, Meggitt, which makes aerospace parts, said that organic revenue growth would be between 2% and 4%, trailing the 8% rise recorded last year, while underlying operating profit would take a 20 million pound ($26 million) hit from the two factors.

The impact was split equally, with 10 million pounds from the Boeing issues and 10 million pounds from the rapid spread of the COVID-19 virus, mainly as a result of the drop in air traffic, Meggitt CEO Tony Wood said.

Shares in Meggitt fell 2.5% to 579 pence at 0945 GMT, making the company one of the biggest fallers on Britain's bluechip index.

Wood said Meggitt's guidance was made on the basis of coronavirus playing out in a similar pattern to the SARS outbreak in 2003.

"We are assuming the same as we've seen in previous outbreaks," he said in an interview. "If it was worse than that, then obviously we would be updating on that later on in the year, but we're assuming essentially it's a 2020 issue."

Lower air traffic growth as a result of the virus spread dampens Meggitt's after-market business, which supplies parts and services to aircraft.

Wood said for Meggitt, that was the main impact of the virus, rather than disruption to supply chains for parts from factory closures in China.

MAX TAILWINDS

The impact of the 737 MAX production halt would, however, affect the company beyond 2020 and into 2021, it warned. Meggitt supplies the 737 MAX with parts including a fire protection system for the engine and auxiliary power units.

The 737 MAX was grounded last March after two crashes killed 346 people. Boeing halted production of the jet earlier in 2020.

Last year, Meggitt's underlying operating profit rose 10% to 402.8 million pounds ($522.19 million), giving an underlying operating margin of 17.7%.

For 2020, Meggitt said that it expected an increase in underlying operating margin of 30 to 50 basis points. For 2021, it forecast a low to mid-single digit organic revenue growth and underlying operating margins in the range of 18.5% to 19%. "Given the impact of the 737 MAX and the potential impact of COVID-19, we figure the full-year 2021 guidance is reassuring," Jefferies analyst Sandy Morris said in a note.

Separately, the company said its chairman Nigel Rudd intended to leave his role once a successor had been appointed.

(Reporting by Sarah Young; editing by Kate Holton and Barbara Lewis)