What to expect from the a2 Milk (ASX:A2M) half year result

The A2 Milk Company Ltd (ASX:A2M) share price will be on watch later this month when it releases its half year results…

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With earnings season now underway, I have been looking at what is expected from some of Australia’s most popular companies.

On this occasion, I’m going to take a look a struggling infant formula and fresh milk producer A2 Milk Company Ltd (ASX: A2M).

What is expected from A2 Milk Company in the first half?

The former market darling is expected to have struggled during the first half of FY 2021 due largely to weakness in the daigou channel.

As a result, analysts at Goldman Sachs are forecasting a sharp decline in both sales and earnings for the period.

According to the note, the broker expects a2 Milk to deliver first half revenues of NZ$676.6 million. This will be a 16% decline on the prior corresponding period. This is despite Goldman expecting direct sales into China/other Asia growing 25.3% to NZ$397.3 million during the half.

And due to margin weakness, its analysts expect the company’s earnings to fall much harder. They are forecasting earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$178.8 million for the half. This will be a 32.9% decline on the first half of FY 2020.

Finally, on the bottom line, Goldman expects this to lead to a 36.7% decline in underlying net profit after tax to $119.1 million.

Goldman Sachs will also be paying close attention to its guidance for the full year. The broker is forecasting revenue of NZ$1,478.7 million and EBITDA of NZ$393.9 million for the 12 months. This will be a 14.6% and 28.4% decline, respectively, year on year.

Is the a2 Milk share price in the buy zone?

Despite the recent weakness in the a2 Milk share price, Goldman is still sitting on the fence with a neutral rating.

However, its price target of $12.09 does offer upside of over 17% based on the latest a2 Milk share price.

A2 Milk is scheduled to release its half year results on 25 February.

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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 and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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