The a2 Milk Company Ltd (ASX: A2M) share price is in focus after releasing a trading and outlook update, highlighting strong demand for its infant milk formula (IMF) in China and ongoing supply chain challenges.
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What did The a2 Milk Company report?
- Year-to-date demand for a2™ brand products remained strong across all regions and channels
- China label IMF sales remain robust, boosted by effective marketing and prior share gains
- Revenue growth for FY26 now expected to be low to mid double-digit percent versus FY25 (previously mid double-digit)
- EBITDA margin guidance lowered to 14.0% to 14.5% (was 15.5% to 16.0%)
- NPAT now forecast to be similar to or down on FY25 reported figure ($203 million)
- Cash conversion revised to approximately 50% (down from 80%)
What else do investors need to know?
Recent strength in demand for a2 Milk's China label IMF products has contributed to temporary supply and product availability issues, with distribution impacted by factors including higher air and sea freight costs, extended quality assurance times, and tighter customs requirements in China. Some product lines, such as a2 Genesis™ in the cross-border e-commerce channel, have also faced near-term availability issues due to high demand and planned maintenance work.
While these supply chain disruptions are largely considered temporary, they are expected to materially affect fourth quarter sales, particularly during April and May, and have led the company to lower its full-year guidance. The company is working closely with supply chain and distribution partners in New Zealand and China to address backlogs and expedite shipments to customers.
What's next for The a2 Milk Company?
The a2 Milk Company expects FY26 performance to be impacted by timing-related and one-off supply chain issues, resulting in lower than previously forecasted revenues and margins. However, management is confident these are temporary challenges, and the group is committed to reinvesting in its brands and maintaining long-term growth.
Capital works and a broader supply chain transformation at a2 Pōkeno remain on track, with anticipation of increased production capability in the first half of FY27. The company will continue providing updates as it navigates ongoing supply, regulatory, and geopolitical uncertainties.
The a2 Milk Company share price snapshot
Over the past 12 months, a2 Milk Company shares have risen 15%, slightly trailing the S&P/ASX 200 Index (ASX: XJO) which has risen 16% over the same period.
