A2 Milk Shares Slump After Earning Outlook Slashed

Shares in a2 Milk tumbled after the company took a big knife in its sales forecasts for the first half and full year 2021 due to the disruption stemming from the Covid-19 pandemic.

By late afternoon, a2 Milk, one of NZX’s largest stocks, was trading at $ 11.02, down $ 3.10 or 22 percent, and cutting more than $ 2 billion from its market capitalization.

The drop was one factor that pushed the benchmark S & P / NZX / 50 index down 1.77 percent to 12,661.

Synlait, A2 Milk’s 20 percent-owned provider, saw its share price drop 25c or 5 percent to $ 4.75 as a result of the downgrade.

In today’s statement, a2 Milk said it now expects its first-half revenue to be in the order of $ 670 million and the group’s earnings before interest, taxes, depreciation and amortization margin (ebitda) to be around 27 percent. hundred.

It now expects full-year 2021 revenue to hit $ 1.40 billion to $ 1.55 billion and a group EBITDA margin of between 26 percent and 29 percent.

At the end of September, a2 Milk had forecast revenue for the first half of $ 725 million to $ 775 million.

Revenue for the year was then forecast at $ 1.80 billion to $ 1.90 billion, with an EBITDA margin of 31 percent.

A2 said in a statement that the effect of the disruption on the daigou channel, which accounts for a significant proportion of its infant nutrition sales on the company’s business in Australia and New Zealand, has proven to be more significant and prolonged than previously known. thought previously.

“While this has predominantly affected sales of infant nutrition, sales in our segment of other nutritional products have now been affected as well,” the company said.

“We expected a moderation in the disruption of this important channel during the second quarter. While there has been some improvement, and infant nutrition sales through this channel are expected to be higher in the second quarter than in the first quarter, the acceleration of the recovery in recent weeks has been slower than we expected. “

“Despite our recent focus on activating CBEC [cross border e-commerce] channel in a way that complements our daigou business, the disruption we are experiencing in the daigou channel is now having a more significant impact on CBEC.

The daigou channel plays an important role in stimulating demand through multiple sales channels, including CBEC.

“While our performance at CBEC in the competitive online sales event showed year-over-year growth, sales on the CBEC channel in the period after that event have been below expectations.”

Slower recovery

“As the recent sales performance on the daigou channel is not as strong as previously expected, we now believe that the recovery in this important channel through the fiscal year balance will also be slower.”

A2 Milk said that Covid-19 related travel restrictions will continue to negatively affect the reseller channel due to reduced travel between Australia and China for the remainder of Fiscal Year 21, with a limited outlook that a significant number of students and international tourists return to Australia during the period.

The company said it continued to target ebitda at a 30 percent margin over the medium term.