The A2 Milk Company Ltd (ASX: A2M) share price has been out of form over the last few weeks
Since this time in August, the fresh milk and infant formula company’s shares have fallen almost 6%.
This compares to a reasonably flat performance by the S&P/ASX 200 Index (ASX: XJO) over the same period.
Why is the A2 Milk share price underperforming?
Investors have been selling down the A2 Milk share price since the release of its disappointing full year results in late August.
For the 12 months ended 30 June, the company reported a 30% decline in revenue to NZ$1.21 billion and a massive 77.6% reduction in earnings before interest, tax, depreciation and amortisation (EBITDA) to NZ$123 million.
This was in line with the very bottom end of its final guidance for FY 2021.
While a poor result was expected after its countless downgrades, its outlook appears to have really disappointed investors and put pressure on the A2 Milk share price.
That outlook commentary reveals that the company is still a long way from returning to form. So much so, another tough year is expected in FY 2022.
A2 Milk’s Managing Director and CEO, David Bortolussi, commented: “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,” he added.
No capital return and revamped growth strategy
Also weighing on the A2 Milk share price was news that management has decided against undertaking a capital return. Instead, it wants to preserve its balance sheet due to the market volatility.
Some of these funds are also expected to be reinvested in growth opportunities. Though, there’s no word on what these are at present. Management revealed that it is currently reviewing its growth strategy in response to a rapidly changing China infant formula market and structural factors in the daigou channel.
Time will tell if these changes lead to an improvement in its performance. But shareholders certainly will be hoping they do. The A2 Milk share price is down 66% over the last 12 months.