A2 Milk (ASX:A2M) share price crashes 10% on disappointing FY22 outlook

It has been another disappointing day for A2 Milk’s shares…

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The A2 Milk Company Ltd (ASX: A2M) share price is out of form again on Thursday.

In morning trade, the struggling infant formula company’s shares are down 10% to $6.17.

This means the A2 Milk share price is now down 66% over the last 12 months.

Why is the A2 Milk share price crashing lower again?

Investors have been selling down the A2 Milk share price following the release of a disappointing full year result and weak outlook for FY 2022.

For the 12 months ended 30 June, the company reported a 30% decline in revenue to NZ$1.21 billion and a 77.6% reduction in earnings before interest, tax, depreciation and amortisation (EBITDA) to NZ$123 million.

This was in line with the very low end of its final downgraded guidance for FY 2021.

What else is weighing on its shares?

Also weighing heavily on the A2 Milk share price was news that the company won’t be returning any of its sizeable cash balance of NZ$875.2 million to shareholders.

Earlier this year, the company revealed that it was considering a capital return. However, this morning it advised that the Board has instead decided to preserve balance sheet strength, having regard to market volatility and potential opportunities to reinvest in growth and supply chain.

Also causing some alarms to sound was the company revealing that it is reviewing its growth strategy in response to a rapidly changing China infant formula market and structural factors in the daigou channel.

A2 Milk’s Managing Director and CEO, David Bortolussi, commented: “We recognise that the China market and channel structure is changing rapidly and we are undertaking a comprehensive process to review our growth strategy and executional plans to respond to this new environment.”

Outlook

Finally, perhaps the biggest drag on the A2 Milk share price was management advising that the tough times may not be over any time soon.

Mr Bortolussi explained: “Overall, although a2MC believes the business will continue to make significant progress on many fronts, FY22 is expected to continue to be a challenging and volatile year. Due to the actions taken in 4Q21 to address channel inventory and improve product freshness, coupled with strong brand health, the business is well-placed to adapt its strategy and execution to drive growth in the longer term. However, recovery in English label channels is expected to be slow and market growth in China will be subdued for some time.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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