A2 share price falls on lower earnings guidance

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Dairy company A2 Milk has downgraded its earnings outlook for 2021 after disruption to its infant formula sales proved to be more significant than first thought.

Preparing baby milk formula on wooden table closeup

The absence of Chinese students and tourists due to Covid-19 has hit sales of A2 Milk’s baby formula.
Photo: 123RF

The company – worth about $10 billion to the local stock exchange – now expects group revenue for the first half of 2021 to be approximately $670 million.

That was a downgrade from September when it forecast sales to be between $725m-$775m.

At the time the company said sales to Chinese students, tourists and unofficial buyers sent back to China, known as the daigou channel, were lower because Covid-19 had closed borders.

“The effect of the disruption in the daigou channel, which represents a significant proportion of our infant nutrition sales in our ANZ [Australia and New Zealand] business, has proved to be more significant and protracted than was previously anticipated,” chief executive Geoff Babidge said.

“While this has predominantly affected infant nutrition sales, sales in our other nutritionals segment have now also been impacted.”

He said recovery throughout the rest of 2021 would be slower as a result.

“We expect that Covid-19-related travel restrictions will continue to negatively impact the reseller channel due to reduced travel between Australia and China through the remainder of FY21, with limited prospect of a return of a significant number of international students and tourists to Australia during the period.”

Babidge said despite the disruption, the company remained confident in its underlying strength and would continue to invest in marketing and the daigou channel in the second half of the year.

The company was placed in a trading halt yesterday while it re-calculated its guidance.

The halt has since lifted with A2’s share price falling 21 percent on the news.

Shares in Synlait Milk, which makes most of A2 Milk’s formula, fell more than 7 percent yesterday.

Synlait shares were placed in a trading halt shortly after the A2 announcement.

At the time of the halt the company’s share price had fallen 3 percent.

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