Synlait (ASX:SM1) share price crashes 7% on cancelled guidance

The Synlait (ASX:SM1) share price is sliding in early trade after the dairy producer withdrew its FY21 profit guidance. Here’s the lowdown.

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Synlait Milk Ltd (ASX: SM1) shares have opened sharply lower today after the New Zealand dairy processor announcing the cancellation of its full-year profit guidance for FY21. At the time of writing, the Synlait share price has slumped 7.24% to $3.33. 

Let’s take a closer look at what Synlait announced.

What’s impacting the Synlait share price?

The Synlait share price is on the slide after the company this morning provided a statement to the ASX advising the withdrawal of its FY21 guidance for the following reasons:

  1. Ongoing uncertainty surrounding demand from A2 Milk Company Ltd (ASX: A2M) for the remainder of FY21.
  2. The impact of this fall in demand on Synlait’s production. According to the company, production of infant formula base powder will drop “significantly”.
  3. Continued global shipping delays, which the company claims, “may still further impact the FY21 result.”
  4. Commodity price volatility.

In further bad news for the Synlait share price, the company also proclaimed:

“The company’s previous guidance, that the overall FY21 [net profit after tax] NPAT result will be approximately half that of the FY20 NPAT result, will now not be attainable.”

Synlait is scheduled to release its half-year results on 29 March.

Synlait’s relationship with A2 milk

In November 2019, A2 Milk and Synlait extended their supply agreement for an additional 2 years – ending in 2025.

Synlait is the producer of A2 Milk’s signature product, its Platinum Infant Formula. The powdered dairy product is heavily sought after in China, with the daigou market acting as the main intermediary for the formula to reach the People’s Republic.

The effects of COVID-19 and resulting border closures have wreaked havoc on daigou channels into Australia. As a result, demand for A2 Milk’s baby powder plummeted.

Synlait describes A2 Milk as “a strategic partner”. Additionally, A2 Milk is Synlait’s second-biggest shareholder, owning nearly 20% of the company’s shares.

Synlait and A2 Milk share price snapshot

Both the A2 Milk and Synlait share prices have taken a beating over the past year. A2 Milk shares have fallen by more than 43% over the past 52 weeks. In early trade today, the A2 Milk share price is trading 1.7% lower at $9.24.

Although not as steep, the Synlait share price has slumped by around 38% over the past year. 

Based on the current Synlait share price, the company has a market capitalisation of $784.7 million. Meanwhile, A2 Milk’s market cap is $7 billion.

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Motley Fool contributor Marc Sidarous 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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