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Down 19%: Why this share is the worst performer on the All Ords on Thursday

The worst performer on the All Ordinaries index on Thursday has been the Synlait Milk Ltd (ASX: SM1) share price.

The dairy processing company’s shares crashed 19% lower to a 52-week low of $6.55 this morning.

Why is the Synlait share price crashing lower?

Investors have been hitting the sell button in a hurry this morning after the company provided an update on its performance in the first half and its expectations for the full year.

According to the release, it has experienced significantly lower than anticipated infant base powder sales during the first half. This has been caused by China infant nutrition market consolidation causing a reduction in demand from brand owners which have not yet received brand registration.

In addition to this, lactoferrin prices have been more volatile than previously anticipated and are weighing on its performance.

What now?

Synlait 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 no longer be achieved.

Synlait expects its first half net profit after tax to be in the range of NZ$26.5 million to NZ$28.5 million. This represents a 24% to 29% decline over the prior corresponding period.

And for the full year, the company has guided to a FY 2020 net profit after tax between NZ$70 million and NZ$85 million. This compares to FY 2019’s profit of NZ$82.2 million.

Synlait Chair Graeme Milne commented: “Naturally, the Synlait team expected a stronger FY20 financial performance. We remain confident that the decision to focus on our medium to long-term strategic opportunities will over time improve shareholder value and the sustainability of our business.”

Positively for A2 Milk Company Ltd (ASX: A2M) shareholders, Synlait was quick to point out that its contribution to this growth has not changed.

This was echoed by a2 Milk Company’s CEO, Geoffrey Babidge. He said: “The a2 Milk Company confirms that its business performance remains strong and it continues to be in compliance with its continuous disclosure obligations.”

Coronavirus update.

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

CEO Leon Clement commented: “While Synlait can confirm there has been no material short-term impact on its financial performance in connection with the Coronavirus outbreak, it represents some downside risk going forward. This was considered as part of the broader outlook update and contributed to Synlait’s decision to issue a wider guidance range at this stage, which was extended down to NZ$70 million.”

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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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