The Bega Cheese Ltd (ASX: BGA) share price continued its poor run and hit a 52-week low of $5.33 on Thursday.
Unfortunately for shareholders, this run could continue on Friday after the food company released a disappointing market update this morning.
What was in the update?
In the first half of FY 2019 Bega Cheese reported a 17% decline in normalised EBITDA to $57.9 million.
Despite this disappointing half, management advised that it was confident in the overall strategy of the business and expected to achieve the lower end of its full year normalised EBITDA guidance range of $123 million to $130 million.
Since then its shares have tumbled significantly lower, which appears to be an indication that the market was unconvinced with this guidance.
Well, the investors that sold the company's shares over the last few months appear to have made a good call.
This morning Bega Cheese downgraded its guidance for normalised EBITDA in FY 2019 to be in the range of $113 million to $117 million, subject to its final statutory audit. This appears to be due to higher costs and its record milk intake.
The release explains: "Bega Cheese has achieved a record milk intake in FY2019 of 1.06 billion litres, an increase of 308 million litres or 41% on milk intake in FY2018. Bega Cheese has also increased its market share of the Australian milk pool from 8.1% to 12.4%."
Adding: "This increase in milk intake has been achieved in a market that has contracted by 733 million litres or 7.9% due to the drought and exit of farmers. There has also been greater competitive pressure from processors and this pressure has never been stronger than in the last quarter of FY2019 and in setting the FY2020 milk price from 1 July 2019."
One positive from today's update is a reduction in its gearing. Management revealed that the company has reduced gearing in the second half and will report net debt in the order of $300 million, with sound leverage cover at the end of the financial year.
But whether that will be enough to stop its shares from sinking even lower today, only time will tell.
Also in the news, Synlait Milk Ltd (ASX: SM1) has announced the completion of its acquisition of selected Talbot Forest Cheese assets. This acquisition includes the property, plant and equipment of the Temuka site, along with the consumer cheese brand – Talbot Forest Cheese.
