The Bellamy's Australia Ltd (ASX: BAL) share price will be on watch this morning following the release of its disappointing half year results.
For the six months ended December 31, on a normalised basis the infant formula company posted a 25.9% decline in revenue to $129.6 million, a 25.5% drop in EBITDA to $26 million, and a 26.3% decline in net profit after tax to $16.5 million.
On a statutory basis EBITDA came in 59.9% lower than the prior corresponding period at $14 million and net profit after tax was down 63.8% at $8.1 million. The statutory result includes a $12 million one-off inventory provision for all legacy-label inventory following its rebrand.
Management blamed the poor half on a decline in sales due to a number of factors including delayed SAMR registration, a planned reduction in trade inventory prior to the rebrand, and an observed slowdown in category performance.
What's next?
Unfortunately, management has downgraded its full year guidance. At its annual general meeting it revealed that it expected full year Australian label revenue growth at the low end of its 0% to 10% range on FY 2018's $302 million.
Whereas now it expects total revenue for the full year to be between $275 million and $300 million, including the Camperdown business which generated $1.9 million of revenue in the first half. This will be a year on year decline of 8.8% to 16.4%.
It has also downgraded its normalised group EBITDA margin guidance from between 22% and 25% to 18% and 22%. This reflects lower forecast revenue and increased investment in marketing and the China team over the coming period.
How will the market react?
Whilst this is clearly a very disappointing result, the market was largely expecting a significant decline in both revenue and profits.
According to a note out of Goldman Sachs, its analysts were expecting Bellamy's to post a 29% decline in sales to $124.8 million and a 27% decline in EBITDA to $25.5 million. On a normalised basis the company's result beat the broker's estimates.
However, there's a chance that the downgrade to its guidance could offset this and put its shares under pressure today.
Should you invest?
Whilst I still think Bellamy's could be a good long-term investment if it receives its SAMR registration, until then I suspect its performance is going to underwhelm.
In light of this, I would class it as a hold and buy rival A2 Milk Company Ltd (ASX: A2M) instead.
