Synlait (ASX:SM1) share price on watch after guidance downgrade

The milk producer’s shares will be in the spotlight after more bad news regarding its FY21 guidance.

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The Synlait Milk Ltd (ASX: SM1) share price is on watch this morning after the company downgraded its FY21 guidance.

Synlait shares finished Friday’s session trading 7.5% higher at $2.99 per share.

The milk powder and milk solids product manufacturer’s share price is down more than 50% over the past 12 months. Let’s take a look at Synlait’s new guidance.

Synlait’s expectations turn sour

Synlait shares will be in the spotlight after the company’s board downgraded its guidance figures this morning. This came after the company undertook an internal review of the “already disclosed risks” that are currently hampering its business performance.

Synlait now expects to make a net profit after tax (NPAT) loss of between $20 million and $30 million in FY21.

One of the reasons for the downgrade is the company’s expectation of ongoing shipping delays, which will result in the sale of some ingredient products occurring after the FY21 balance date.

Synlait is also achieving lower prices for ingredient products than usual, due to “prevailing market prices”, which it blames on a combination of sales phasing and volume pressure. Furthermore, the company says it’s adopting a “more conservative” approach to year-end inventory volumes and valuation, leading to what it believes is a safer guidance figure.

The Synlait share price crashed in late March after the company cancelled its original FY21 guidance following a significant drop in demand from A2 Milk Company Ltd (ASX: A2M). At that time, the company had forecast FY21 NPAT to be “broadly breakeven”.

But faltering guidances aren’t the Synlait board’s only problem. It’s also been hit in the past two months by the losses of its CFO and CEO in quick succession.

Management comments

Synlait CEO John Penno kept his update comments short but not so sweet, saying:

I am disappointed to share this news with our investor base. As a team we are focused on closing out this year as well as we can, then resetting, and delivering a much improved financial performance in FY22.

Synlait share price snapshot

The Synlait share price has performed poorly since the outbreak of the coronavirus pandemic slammed the Chinese milk and baby formula market shut. Synlait shares are now down near the company’s five-year lows, after peaking at over $12 in late 2018. The company’s shares have lost 39% in 2021 alone.

Motley Fool contributor Lucas Radbourne-Pugh has no position in any of the stocks mentioned. The Motley Fool Australia 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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