A2 Milk Company Ltd (ASX: A2M) shares are on the slide on Thursday.
In morning trade, the infant formula company's shares are down over 4% to $8.78.
Why are A2 Milk shares falling?
The catalyst for today's decline has been the release of a trading update ahead of its annual general meeting.
According to the release, the infant milk formula (IMF), other nutritionals and liquid milk product categories have been trading stronger than expected during the first half of FY 2026. However, it is possible that the market was already factoring this in and possibly even more.
Commenting on its performance so far in FY 2026, A2 Milk's CEO, David Bortolussi, said:
I'm pleased to say that we've started the financial year strongly with IMF, Other Nutritionals and Liquid Milk product categories all trading ahead of expectations. In addition, changes to actual and forecast currency rates reflecting NZD depreciation are expected to inflate sales and expenses, with the impact to EBITDA not expected to be material.
In light of this, the company has upgraded its guidance for the year ahead.
On a continuing operations basis, A2 Milk now expects low double-digit percentage revenue growth in FY 2026. Previously it was guiding to high single-digit percentage growth from its continuing operations.
Management notes that first half revenue growth in FY 2026 is expected to be higher than second half revenue growth. In addition, English label IMF revenue growth is expected to be significantly higher than China label IMF revenue growth.
Management also reaffirmed its EBITDA margin guidance. It continues to expect an EBITDA margin in the range of approximately 15% to 16% for the year. Its depreciation and amortisation guidance has also been reaffirmed at approximately NZ$20 million to NZ$24 million.
One item heading in the wrong direction is A2 Milk's capital expenditure guidance, which has been lifted by NZ$10 million to NZ$60 million to NZ$80 million. This reflects the accelerated progress of the a2 Pokeno capital investment programme.
And finally, net profit after tax is expected to be "slightly up" on what was delivered in FY 2025. This compares to its previous guidance for a relatively flat net profit.
Special dividend
At the event, Bortolussi reaffirmed the company's plan to reward shareholders with a fully franked NZ$300 million special dividend. He said:
As noted by our Chair in her address, the Board intends to declare a special dividend of $300 million, subject to obtaining regulatory approvals, to bring the new China label registered products under the a2MC brand, which is expected to take up to twelve months from when we announced the acquisition. The special dividend is expected to be unimputed and fully franked.
