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A2 Milk Company share price on watch after market update

The A2 Milk Company Ltd (ASX: A2M) share price will be one to watch this morning after the release of a market update.

What did a2 Milk Company announce?

This morning dairy processor Synlait Milk Ltd (ASX: SM1) released an update on its earnings guidance for FY 2020.

Synlait, which counts a2 Milk Company as one of its biggest customers, revealed that it was unlikely to achieve its earnings growth guidance in FY 2020.

The company was expecting to grow its profits at a similar rate to what it achieved in FY 2019. However, based on its current financial performance, this rate of growth will not be achieved.

Management advised that this was the result of significantly lower than anticipated infant base powder sales due to China infant nutrition market consolidation causing a reduction in demand from brand owners who are yet to receive brand registration.

In addition to this, lactoferrin prices have been more volatile than previously anticipated.

Overall, Synlait still anticipates growth in consumer-packaged infant formula sales volumes over the full year, but this growth is not as strong as initially envisaged.

Though, it was quick to point out that a2 Milk Company’s contribution to this growth has not changed.

Coronavirus.

Synlait also provided an update on the impact of the coronavirus outbreak on its business.

While the company confirmed that there has been no material short-term impact on its financial performance in connection with the coronavirus outbreak, it admitted that it represents some downside risk going forward.

CEO Leon Clement commented: “Synlait is an export-based business and our reputation has been built, and is maintained, on ensuring we put people, food safety and quality at the heart of what we do. This will continue to inform our response to this situation. We are not currently experiencing any supply chain disruption; however, we are monitoring the situation very closely and felt it prudent to front foot potential impacts.”

A2 Milk Company response.

This morning a2 Milk Company’s chief executive officer, Geoffrey Babidge, noted the announcement by Synlait Milk.

But advised that: “The a2 Milk Company confirms that its business performance remains strong and it continues to be in compliance with its continuous disclosure obligations. The a2 Milk Company intends to release its results for the half year ended 31 December 2019 on Thursday, 27 February 2020 and will make further comment on the business at that time.”

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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.

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