Bellamy's Australia Ltd (ASX: BAL) has seen its share price whacked again today, losing 4.7% to $6.53 in afternoon trading.
The infant formula supplier and distributor continues to feel the wrath of investors and shareholders, with many analysts slashing their forecast earnings for the company for the next few years.
That came after Bellamy's share price crashed more than 40% on Friday, after downgrading its earnings guidance for the 2017 financial year.
The significant factor was "temporary volume dislocation due to regulatory changeover". In simple terms, it means that regulatory changes that will see hundreds of infant formula brands disappear from shelves in China have forced massive volumes of supply into the market at discounted prices.
Those retailers and brands that feel they are unlikely to meet the stricter new requirements are dumping their infant formula stock at fire sale prices. That could continue for as long as those companies still have stock left.
Bellamy's says it is well placed to meet those new requirements, and that China remains an important market for its infant formula and other baby products.
But the impact will mean lower revenues than the 2016 financial year of around $240 million compared to $244 million in FY2016.
Unfortunately, the company is not only beset by business issues, but management may have made the situation worse. Chairman Robert Woolley and CEO Laura McBain both sold shares worth millions in August at prices above $14. Cynical investors could see that as key stakeholders dumping shares before they hit turbulence.
At the company's AGM on October 19, Bellamy's also gave no indication at all that it saw the problems it currently faces. Given we are now into the sixth month of the new financial year, that either speaks volumes about management's skill, or something perhaps even worse such as negligence.
There's also the stark contrast with the news from competitor a2 Milk Company Ltd (Australia) (ASX: A2M) – which announced strong results for the four months to end of October, including revenues rising 96% compared to the same period last year, and profit before tax up 536%. Admittedly, a2 Milk doesn't just sell infant formula but a range of milk and dairy products. However, the company did say it saw strong growth in child formula sales.
Foolish takeaway
As a shareholder, I'm not all that happy about seeing the share price slammed as it has been over the past few days. It's possible that there may be more bad news ahead if conditions worsen.
However, I'm investing in Bellamy's for the long term and will be holding onto my existing shares for now and awaiting more news.
