a2 Milk Company Ltd (ASX:A2M) reports another quarter of soaring revenue

a2 Milk Company Ltd (ASX: A2M) has given a trading update for the nine months to 31 March 2018. The company also gave its outlook for the full-year FY18 result.

Trading update

The company said that for the nine months to 31 March 2018 the total revenue was NZ$660 million, which is around a 70% increase on the prior corresponding period.

a2 attributed this performance to sales growth in both the nutritional products and liquid milk categories. The company reminded investors that this includes the impact of key seasonal sales from key China selling events weighted towards the first half of the financial year.

FY18 Outlook

In regards to the full-year result for FY18, the company said that it anticipates total revenue will be between NZ$900 million to NZ$920 million. a2 said that this includes the planned transition to new infant formula packaging during the fourth quarter. The range of revenue would be growth of around 64% to 67% in FY18 – which is a bigger increase than the increase in FY17.

The company’s gross margin is expected to be roughly the same as the first half of FY18, given the benefit of ‘throughput efficiencies’ and currency movements.

It also warned that the total marketing investment is now going to be in the range of NZ$82 million to NZ$87 million, due to the expansion in the US and China – this is around double FY17’s spend.

Foolish takeaway

This is a solid update and it seems growth is nowhere done yet. The US and China expansions could add a lot more revenue over time considering how big the populations are in those regions.

I can understand why the share price has been a rocket over the past year. It’s currently trading at around 46x FY18’s estimated earnings, but growth could continue strongly over the coming years to make this valuation seem more acceptable.

However, if you think a2 is trading just too expensively, then this top stock could be a great choice, it’s predicting profit growth of 30% this year and is a leader in its field – that’s why it’s in my portfolio.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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