It has been another bitterly disappointing day of trade for the A2 Milk Company Ltd (ASX: A2M) share price on Monday.
At one stage today, the fresh milk and infant formula company's shares were down 15.5% to a multi-year low of $5.93.
The a2 Milk share price has recovered a touch since then but remains 9% lower at $6.40 at the time of writing.
Why is the a2 Milk share price crashing lower?
Investors have been heading to the exits in their droves on Monday after a2 Milk downgraded its FY 2021 guidance for the fourth time.
Management made the move due to sustained weakness in the daigou channel and significant inventory issues.
How a2 Milk's FY 2021 guidance unravelled
Back in August 2020, the company first announced its guidance for FY 2021. Management revealed that it expected "strong revenue growth" and an earnings before interest, depreciation and amortisation (EBITDA) margin of 30% to 31% in FY 2021.
This would be up from revenue of NZ$1.73 billion and EBITDA of NZ$549.7 million in FY 2020.
The first signs of trouble
This guidance was reaffirmed on 9 September, only to be downgraded a little under three weeks later on 28 September.
At that point, management revealed that it was starting to observe emerging additional disruption to the corporate daigou market.
As a result, instead of "strong revenue growth", it was now expecting revenue of NZ$1.8 billion to NZ$1.9 billion, representing growth of 4% to 10% year on year. Its EBITDA margin was still expected to be ~31%, representing EBITDA of NZ$558 million to NZ$589 million.
Things get worse
On 18 December, the a2 Milk share price sank after management made a further downgrade to its guidance due to sustained weakness in the daigou channel.
As a result, it reduced its guidance to revenue of NZ$1.4 billion to $1.55 billion with an EBITDA margin of between 26% and 29%. This implies EBITDA between NZ$364 million to NZ$450 million.
The third downgrade
On 25 February, a2 Milk released its half year results and once again downgraded its FY 2021 guidance.
At this point, management advised that it was now expecting revenue of NZ$1.4 billion with an EBITDA margin of 24% to 26% (excluding acquisition costs). The latter represents EBITDA of NZ$336 million to NZ$364 million.
The fourth (and surely final?) downgrade
This brings us to today, which has seen the company downgrade its guidance materially once again, putting significant pressure on the a2 Milk share price.
The company now expects revenue of NZ$1.2 billion to NZ$1.25 billion for FY 2021 with an EBITDA margin of 11% to 12% (excluding acquisition costs).
This implies EBITDA of just NZ$132 million to NZ$150 million, which will be down 73% to 76% year on year.
This guidance includes an inventory provision of approximately NZ$80 million to NZ$90 million, in addition to the NZ$23 million provision recognised in the first half.
Insider selling
Following today's decline, the a2 Milk share price is now down 65% over the last 12 months.
Management certainly will be relieved that they were able to offload millions of dollars worth of shares in August last year just before the downgrade cycle began.
One of those sellers was Peter Nathan, who has resigned from his role of Chief Executive Officer of Asia Pacific today. He sold 750,000 shares between 24 August and 26 August for an average of NZ$20.12 or a total consideration of almost NZ$15.1 million.
