The Motley Fool

A2 Milk Company share price on watch after strong trading update

The A2 Milk Company Ltd (ASX: A2M) share price could be on the move on Tuesday after the infant formula and fresh milk company provided a trading update ahead of annual general meeting.

How has a2 Milk Company performed in FY 2020?

The fast-growing company has continued its positive form during FY 2020.

CEO Jayne Hrdlicka revealed that she expects a2 Milk to deliver revenue in the range of NZ$780 million to NZ$800 million during the first half of the financial year. This compares to NZ$613.1 million in the prior corresponding period. Which implies year on year growth of 27.2% to 30.5%.

Once again, the China market is the key driver of this growth. China label infant nutrition sales are forecast to be approximately NZ$135 million, representing a growth rate of ~84%. CBEC infant nutrition sales are forecast to be approximately NZ$155 million, representing a growth rate of ~54%

The company’s ANZ English label infant nutrition sales are growing, but at a much slower rate. These sales are forecast to be approximately NZ$350 million, which represents a growth rate of ~9%.

Also supporting its growth is its Fresh Milk business. Fresh Milk sales in the United States are expected to more than double to NZ$27 million. Whereas Australian fresh milk sales are forecast to come in at NZ$75 million, representing a growth rate of ~12%.

Margins.

There have been a lot of concerns over a2 Milk’s margins due to its increased spend on sales and marketing activities.

The good news is that margins are anticipated to be better than expected. In the first half its EBITDA margin is expected to be in the range of 31% to 32%. And while the full year EBITDA margin will be softer than this, it is also expected to be stronger than previously communicated.

This is the result of its strategic gross margin improved price yield, cost of goods sold reduction, favourable foreign exchange.

No concrete guidance has been given for the full year, but the CEO appears confident that the positive form can continue.

She said: “Overall, for FY20 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.”

“While we have only just begun our journey in both Greater China and the US, the results of strategic focus and investment are starting to come through. Competitive intensity will continue to increase in China and thus far we have been well prepared. Our investments are strategic and designed to build the brand, deepen our capability and create further organisational depth and resilience to thrive in this environment. This is strongly enabled by our deep sense of purpose, the passion that backs that up and importantly, our growth mindset as a team,” concluded Ms Hrdlicka

NEW. Must Buy Growth Shares for 2020….

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield...

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!

Motley Fool contributor James Mickleboro 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.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!