Despite disappointing FY21 results, the A2 Milk (ASX:A2M) share price is still up in August. Here’s why

Remarkably, the company’s shares are still in the green so far in August.

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The A2 Milk Company Ltd (ASX: A2M) share price has managed to shrug off disappointing full-year results to be still trading higher this month.

Despite tanking more than 13% since reporting its results for FY21, shares in the infant formula producer are in the green for August.

Let’s take a look at what’s been supporting the A2 Milk share price.

Takeover talks fuel A2 Milk share price in August

Shares in A2 Milk made significant gains earlier this month following reports of a potential takeover.

Although the company didn’t formally acknowledge the rumours, investors were quick to drive shares in A2 Milk higher.

According to reports, global food giant Nestle was reportedly taking a close look at A2 Milk.

As a result, shares in the company bolted more than 17% higher.

Full-year results weigh down A2 Milk share price

A disappointing full-year result and outlook brought a wave of selling upon the A2 Milk share price earlier this week.

A2 Milk reported a 30% decline in revenue to NZ$1.21 billion during FY21.

In addition, the former market darling noted a 77.6% reduction in earnings before interest, tax, depreciation and amortisation (EBITDA) to NZ$123 million.

A2 Milk also advised that the company would review its growth strategy, given the rapid changes in the daigou channel and Chinese infant formula market.  

The outlook for A2 Milk

A2 Milk’s management noted an uncertain outlook after delivering the company’s full-year result.

Growth in the Chinese formula market remains the main driver of A2 Milk’s earnings.

According to management, falling birth rates in China could weigh heavily on the company’s outlook.

In addition, the company cited a sharp fall in demand and disruption in cross-border trade.

In light of these circumstances, its management stressed the importance of innovating and expanding its product portfolio.

A2 Milk is also in the process of addressing major problems with inventories.

At the end of June, the company’s inventory stood at $NZ112.2 million, with A2 Milk focused on reducing excess stock.

As a result of these headwinds, A2 Milk expects revenue for the first half of FY22 (including MVM) to be marginally lower than the first half of FY21.

Despite a strong rally earlier this month, the A2 Milk share price has plummeted more than 47% since the start of 2021.

Motley Fool contributor Nikhil Gangaram owns shares of A2 Milk. 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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