a2Milk shares jump on upgraded earnings guidance

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Jayne Hrdlicka of A2 Milk.

Investors have piled back into the a2Milk Company after it lifted its earnings guidance for the current financial year during its annual general meeting in Auckland.

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The company cited better price yields, a reduction in the cost of goods sold and favourable foreign exchange movements as it released the update, saying it now expected an EBITDA (earnings before interest, tax, depreciation) margin for 2019-20 of between 29 and 30 per cent.

This is well above the forecast released in August for an EBITDA margin of about 28.2 per cent which disappointed investors, sending a2Milk shares down at the time despite the company’s strong financial results for 2018-19.

But in response to today’s news, a2 shares jumped 17.3 per cent to $14.10 at 10.11am on the Australian market.

The infant formula and nutrition company also released other healthy forecasts for 2019-20, tipping that revenue would be in the range of $NZ780 million (AUD$780 million) to $NZ800 million (AUD$752 million) for the first half of the current financial year.

The top end of that forecast is 30.5 per cent higher than the result for the first half of last year.

“Overall, for financial year 2019-2020 we anticipate continued strong revenue growth across our key regions supported by brand and marketing investment in China and the US and the development of both capability and infrastructure to support in-market execution,” a2 chief executive Jayne Hrdlicka told investors.

“As an outcome of strategic gross margin focus, full-year EBITDA margin percentage is now anticipated to be stronger than previously communicated,” she said.

Surging sales in China and strong growth in other markets are the key factors behind the projected revenue growth.

The company is forecasting an 84 per cent jump in China label infant nutrition sales in the first half to about $NZ135 million (AUD$127million), and a rise of about 54 per cent in cross-border e-commerce infant nutrition sales into China to $NZ155 million (AUD$145million).

English label infant nutrition sales in Australia and New Zealand are tipped to rise about nine per cent to $NZ350 million (AUD$329million), while fresh milk sales in Australia are forecast to rise 12 per cent to $75 million (AUD$70 million).