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…

| More on:
white arrow pointing down

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Should you invest $1,000 in Bitcoin.ℏ right now?

Before you buy Bitcoin.ℏ shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Bitcoin.ℏ wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

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.

More on Share Market News

Person pretends to types on laptop drawn in sand.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a happy finish to the week for ASX shares this Friday.

Read more »

Three people in a corporate office pour over a tablet, ready to invest.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.
Share Market News

ASX shares in April: 8 key takeaways according to Macquarie

Here are eight key takeaways from April, according to a new note from the broker.

Read more »

Woman looking at a phone with stock market bars in the background.
Share Market News

Market outlook: Should I 'sell in May and go away'?

May is the time to sell... If you believe in fairytales.

Read more »

Five young people sit in a row having fun and interacting with their mobile phones.
Share Gainers

5 ASX All Ords stocks rocketing higher this week

Investors sent these five ASX All Ords stocks soaring this week. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Block, Corporate Travel Management, Judo, and Zip shares are sinking today

These shares are missing out on the good times on Friday. But why?

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Share Gainers

Why Boss Energy, Capstone, Dimerix, and Platinum shares are storming higher today

These shares are having a good finish to the week. Let's find out why.

Read more »

A shocked man holding some documents in the living room.
Broker Notes

Macquarie's take on Judo Capital shares after suddenly falling 19% yesterday?

Judo Bank was the ASX's top-performing banking stock in 2024.

Read more »