The Bega Cheese Ltd (ASX: BGA) share price is on the slide on Thursday morning.
At the time of writing, the diversified food company's shares are down 9% to $5.10.
Why is the Bega share price sinking?
Investors have been selling down the Bega share price today after it provided the market with a trading update.
According to the release, demand for Bega's products has remained strong during the pandemic.
Management notes that the company's portfolio of quality brands, its Australian and international customer channels, and extensive product mix have been particularly important. It highlights that this positioned the company well to deal with the many changes and challenges associated with the impact of COVID-19.
These include disruption in Australian food service channels as a result of lockdowns, structural changes in the Chinese infant formula market, significant operational disruption including factory shutdowns, major changes to operations and logistics scheduling, increased safety and testing regimes, major cost increases, and shortages across the entire supply chain.
In respect to the latter, the company has been focused on managing the cumulative effect of the direct and indirect costs associated with COVID-19. It notes that some of the impacts will be offset by improved market returns and the cessation of a number of one-off costs. However the timing of both price increases and the removal of COVID-19 related costs will affect business performance in FY 2022.
In addition, the company warned that farm milk supply across the Australian dairy industry remains flat to declining. Combined with strong competition for supply, management expects upward pressure on pricing to continue.
Nevertheless, management is expecting to deliver operating earnings growth this financial year.
FY 2022 guidance
Bega has provided guidance for normalised EBITDA in the range of $195 million to $215 million. This will be an increase of 37% to 51% from $142 million in FY 2021.
However, as strong as this growth may be, it is short of what many in the market were expecting, which explains why the Bega share price is sinking today. A recent note out of Bell Potter, for example, reveals that it was forecasting EBITDA of $223.1 million in FY 2022.
Following today's decline, the Bega share price is now trading lower year to date.
