A2 Milk Slashes Full-Year Outlook Again as China Sales Falter

New Zealand’s A2 Milk Co. again cut its full-year earnings outlook as sales of infant formula to China continue to falter.

The company now sees full-year revenue of NZ$1.2 billion to NZ$1.25 billion, down from NZ$1.4 billion in February and as much as NZ$1.9 billion ($1.38 billion) late last year, it said Monday in Wellington. It more than halved its estimated operating earnings margin to 11-12%.

A2 is struggling particularly with excess inventory in the so-called daigou trade, where people buy products overseas and ship them to China for resale. Pandemic border restrictions have slashed Chinese tourist and student numbers in neighboring Australia, impacting sales.

“In the interest of the long-term health of our brand and the medium-term trading outlook of the business, more aggressive actions to address inventory will be taken,” Chief Executive David Bortolussi said. “Despite these short-term setbacks, we are confident in the long-term potential for infant nutrition and other opportunities we have in China, and are determined to build on the strong position we have built in the market over the past five years.”

The company’s products are sourced from dairy cows that produce only the a2 type of protein, which it says allow millions of lactose-intolerant consumers to drink it without discomfort.

A2 said it will increase marketing investment to drive consumer demand, but also recognizes the China market and channel structure is changing rapidly and has commenced a review of its growth strategy. In addition, the board is actively considering capital management initiatives, including a potential share buy-back, it said. An update will be provided at the full-year results in August.

The stock, among the largest on New Zealand’s market, has plunged from more than NZ$21 last year to NZ$7.59 at the end of last week. It dropped a further 18% at the open in Wellington on Monday to NZ$6.22.

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