Why the A2 Milk share price is up over 5%

The A2 Milk Company Ltd (ASX:A2M) share price is up more than 5% after it released its FY20 half-year result.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The A2 Milk Company Ltd (ASX: A2M) share price is up more than 5% after the infant formula business announced its FY20 half-year result.

A2 Milk's impressive performance

A2 Milk reported that its total revenue rose by 31.6% to NZ$806.7 million. The infant nutrition segment saw sales growth of 33.1% to NZ$659.2 million with China label infant nutrition sales growing by 100% to NZ$146.7 million, distribution has expanded to 18,300 stores. Total liquid milk sales increased by 28.7% to NZ$104.4 million. US milk revenue more than doubled and the distribution has expanded to 17,500 stores.

Its gross profit margin improved to 57.2% with the continuing mix shift to infant formula as well as increased prices.

The company managed to increase earnings before interest, tax, depreciation and amortisation (EBITDA) by 20.5% to $263.2 million with the EBITDA margin of 32.6% being better than expected because of the gross profit margin.

Net profit after tax (NPAT) grew by 21.1% to NZ$184.9 million and earnings per share (EPS) increased by 20.6% to NZ 25.15 cents.

The company generated NZ$160.6 million of operating cash flow and finished with NZ$618.4 million of cash on the balance sheet. It has no debt.

Outlook

The company continues to expect strong revenue growth across its key regions as it continues to spend on marketing in China and the US.

The coronavirus has created uncertainty, particularly surrounding supply chains and how it will affect demand in China. Online and reseller demand remains strong and revenue was above expectations in the first two months of the second half.

The EBITDA margin for the full-year is still expected to be in the range of 29% to 30% with a long-term goal of 30% which reflects the ongoing investment in marketing. There could be increased supply chain costs as a result of the coronavirus.

I can see why investors pushed the A2 Milk share price higher today on this strong result, but I'd wait before buying A2 Milk shares – the coronavirus could have a negative effect on both the profit and share price of A2 Milk if it keeps spreading.

Motley Fool contributor Tristan Harrison 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.

More on Share Gainers

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Share Gainers

3 ASX All Ords shares up 50%+ in March

These ASX shares have been on fire this month. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Share Gainers

Why Mesoblast, Patriot Battery Metals, Sigma, and Zip shares are pushing higher

These shares are having a good session on hump day. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Consumer Staples & Discretionary Shares

If you'd put $20,000 in this ASX retail stock at the start of 2023, you'd have $134,000 now

This online retailer has executed a remarkable turnaround for its investors.

Read more »

Fancy font saying top ten surrounded by gold leaf set against a dark background of glittering stars.
Share Gainers

Here are the top 10 ASX 200 shares today

It was back to earth for ASX shares this Tuesday.

Read more »