The A2 Milk Company Ltd (ASX: A2M) share price fell 13.2% after investors turned a bit sour on the company.
The a2 Milk Company is one of Australia and New Zealand’s largest infant formula producers and the leader in a2-only protein based dairy products. It has operations in New Zealand, Australia, USA and China thanks to key supply and distribution agreements.
Why The A2 Milk Share Price Dropped 13%
The dairy business reported its FY19 result today. Revenue increased by 41.4% to NZ$1.3 billion, total EBITDA rose by 46.1% to NZ$413.6 million (click here to learn what EBITDA means) and net profit after tax (NPAT) increased by 47% to $287.7 million.
However, the release of the report is actually a judgement call by the market of whether expectations of the profit were right or not. One could argue it’s the fault of the analysts for guessing the wrong profit figure, unless the business’ management had provided guidance and then didn’t hit it.
Market consensus for this result was for a net profit of NZ$296.2 million, so it seems that the market’s expectations were a little too high.
Investors also probably didn’t like to hear that A2 Milk’s EBITDA margin was likely to fall slightly in FY20 due to its investing in growth and a growing marketing spend. A2 Milk also withdrew from the UK market, for now at least, to focus on the much larger opportunities in the markets of the US and China.
With the fall in the share price, A2 Milk could be an opportunity. An increase of revenue and net profit of more than 40% is really impressive after several years of growth already with plenty of more potential growth ahead. One day A2 Milk could be a truly global business.
But the growth shares in the free report below could be even better considering there is growing competition in the a2 protein space and the ‘high quality’ product space.
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At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.