a2 Milk (ASX:A2M) share price on watch after downgrading guidance again

The A2 Milk Company Ltd (ASX:A2M) share price will be on watch on Thursday after it downgraded its FY 2021 guidance was again…
The post a2 Milk (ASX:A2M) share price on watch after downgrading guidance again appeared first on The Motley Fool Australia. –

A white arrow point down into the ground against a blue backdrop, indicating an ASX market crash or share price fall

The A2 Milk Company Ltd (ASX: A2M) share price will be one to watch on Thursday.

This follows the release of the fresh milk and infant formula company’s half year results this morning.

How did a2 Milk perform in the first half?

The good news for shareholders and the a2 Milk share price is that the company delivered a result in line with its downgraded guidance.

For the six months ended 31 December, the company reported a 16% decline in revenue to NZ$677.4 million. This compares to its guidance of ~NZ$670 million for the half.

In respect to earnings, a2 Milk posted a 32.2% decline in earnings before interest, tax, depreciation and amortisation (EBITDA) to NZ$178.5 million.

While this means that its EBITDA margin came in below its guidance of ~27%, this was due to Mataura Valley Milk acquisition costs. Excluding these costs, a2 Milk’s EBITDA margin would have been in line at 27%.

And on the bottom line, the company’s net profit after tax fell 35% over the prior corresponding period to NZ$120 million.

Finally, a2 Milk reported a NZ$9.2 million operating cash outflow for the period. This was due to an increase in inventory and a decrease in accounts payable. Nevertheless, the company finished the period with a massive NZ$774.6 million cash balance and no debt.

Why did sales and earnings decline?

There have been a number of factors weighing on the company’s performance and ultimately the a2 Milk share price.

The main one is of course weakness in the daigou and cross-border e-commerce (CBEC) channels. They have been significantly impacted due to disruption resulting primarily from COVID-19 related issues.

And although the company’s China label infant nutrition products grew sales by 45.2% to NZ$213.1 million and its Australian and US liquid milk businesses continue to growth, it wasn’t enough to offset this.

Also weighing on its performance was weaker gross margins. This was primarily due to recognising a stock provision of NZ$23.3 million, higher cost of goods sold for China label infant nutrition, pricing pressures, and an adverse product mix shift. The latter has seen a higher proportion of liquid milk to infant nutrition sales.

Guidance downgraded again

Although a2 Milk delivered a first half result in line with its guidance, it looks likely to fall short of its full year guidance. This could be bad news for the a2 Milk share price on Thursday.

Management commented:

“The pace of recovery in the daigou/reseller channel and in the CBEC channel has been slower than previously anticipated and the Company now expects revenue to be at the lower end of the previous guidance range.”

“A lower EBITDA margin range is now expected due to lower revenue, higher brand investment, longer daigou/reseller support, movements in foreign currency and adverse channel mix relative to what was anticipated in December.”

In light of this, it is forecasting FY 2021 revenue of ~NZ$1.4 billion. This compares to its previous guidance range of NZ$1.4 billion to NZ$1.55 billion.

As for its earnings, management now expects an EBITDA margin of 24% to 26% (excluding acquisition costs). This compares to its previously downgraded guidance for an EBITDA margin of 26% to 29%.

It is also worth noting that this guidance assumes that actions it is taking to reactivate the daigou/reseller channel deliver a significant improvement in quarter-on-quarter growth in the fourth quarter.

The a2 Milk share price is down 31% over the last 12 months.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of February 15th 2021

More reading

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post a2 Milk (ASX:A2M) share price on watch after downgrading guidance again appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!