In morning trade the Bega Cheese Ltd (ASX: BGA) share price has come under pressure following an update ahead of its annual general meeting.
At the time of writing the diversified food company's shares are down 17% to a 52-week low of $3.76.
What was in Bega Cheese's update?
This morning Bega Cheese revealed that trading conditions have continued to be tough in FY 2020.
According to the release, Bega Cheese has experienced unprecedented competitive milk supply conditions and easing demand from third party branded businesses.
This has been driven largely by the continuing drought and the subsequent reduction in total Australian milk production. This has escalated competition for milk and flowed through to a higher ongoing cost of milk across the industry.
Chairman Max Roberts said: "We have previously advised that conditions impacting FY2019 would continue into FY2020. This has proven to be the case, but at a faster and deeper rate. To remain competitive Bega Cheese today announced an increase in its Southern Region milk price and other initiatives to sustain and grow milk supply. This higher milk price will directly impact Bega Cheese's earnings in FY2020."
The company has also seen a slowdown in growth in key categories. This is particularly the case for products destined for certain export markets.
As a result of these headwinds, management expects its profits to decline this year. Bega Cheese expects its normalised EBITDA to be in the range of $95 million to $105 million in FY 2020. This compares to $115 million in FY 2019 and will be a year on year decline of 8.7% to 17.5%.
What now?
The company is responding to these challenging conditions and aiming to limit downside risk.
CEO Paul van Heerwaarden said "Bega Cheese is proactively responding to increased milk competition and we will continue to manage our supply chain for domestic and international trade to mitigate further downside risk. We are also well advanced with internal reviews within our business to ensure our cost structure is correctly aligned to current and medium-term market conditions."
Also sliding lower on Tuesday are the shares of Jumbo Interactive Ltd (ASX: JIN) and Virtus Health Ltd (ASX: VRT). The Virtus share price is down after announcing its CEO succession, whereas Jumbo appears to have be weighed down by profit taking.
