The Bega Cheese Ltd (ASX: BGA) share price was in a world of pain on Wednesday, cascading to its lowest level in almost a decade. Bega's bitter performance stood out like a sore thumb against a backdrop of the S&P/ASX 200 Index (ASX: XJO) rallying 1.1%.
Adding to yesterday's decline, shares in the dairy food products manufacturer sliced away another 8.5% to close at $3.11. During the session, Bega shares posted another 52-week low of $3.07, setting a sour tone for the day.
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Hard-to-swallow update
Yesterday, Bega announced to the market the sale and leaseback of its Port Melbourne site. Management touted the $114.6 million transaction as a win for the company's balance sheet. However, the trading update portion of the release might hold more weight in the eyes of shareholders.
All roads lead to Bega being bitten by inflation as the price for its raw materials, most prominently farm gate milk, grows faster than its bulk commodity prices. Fortunately, Bega has been able to carry out its own price increases while maintaining some brand loyalty.
An expectation that pricing pressures will continue in FY24 might be behind yesterday's investor shakedown. Considering the ASX 200 company posted near-non-existent earnings for the 12 months ending December 2022, the prospect of more pain could be the final straw for some shareholders.
In addition, market participants might be wondering why Bega is struggling with cost pressures as we witnessed a surprise slowing of inflation yesterday. The monthly Consumer Price Index (CPI) came in at a rise of 5.6% — below the 6.1% expected.
What else is hurting this ASX 200 stock?
The discrepancy between the latest inflation print and Bega's rising expenses draws into question the pricing power held by this ASX 200 company. Does it have the brand strength to maintain sustainable margins?
For the team at Bell Potter, the outlook isn't as rosy on the Bega share price. After yesterday's announcement, the broker cut the dairy food maker to a hold and dialled back its price target by 13% to $3.50.
