The A2 Milk Company Ltd (ASX: A2M) share price is under the spotlight today after the business gave an update about its FY26 trading and supply chain problems.
A2 Milk is one of the largest infant formula producers in the Asia Pacific region. It also produces liquid milk.
A2 Milk FY26 trading update
The infant formula business said it has experienced strong demand for the a2 brand across all of its product categories and regions in the third quarter of FY26.
Year-to-date ‘offtake’ trends are similar or better than what was experienced in the first half of FY26.
A2 Milk also said that Chinese label a2 infant formula demand remains strong. New customer wins for early-stage products continued to improve after supply constraints in the first quarter of FY26, supported by the successful My Little Pony marketing campaign.
Later stage product growth benefited from prior period share gains and stage transition, as well as the success of the company’s new kids’ nutrition product.
English label infant formula demand continued to be strong, supported by growth in a2 Platinum and a2 Genesis products across all stages, particularly in the cross-border e-commerce (CBEC) channel.
Supply chain struggles
The company reported to the market that it’s currently experiencing “temporary” in-market product availability issues primarily in relation to shortfalls of Chinese label infant formula product at distributors and retailers.
A2 Milk pointed out some of the challenging factors.
Demand for a2 infant formula products have been strong, partially supported by international competitor product recalls.
Availability and increased cost of air freight to accelerate product shipments to China is being indirectly impacted by the Middle East conflict.
A2 Milk inventory levels have been low throughout FY26 due to Synlait Milk Ltd (ASX: SM1) manufacturing challenges and other operational issues impacting production. Synlait production has recently returned to target levels, but there has been a significant backlog of unfilled purchase orders from Synlait with less capacity to catch up due to the sale of North Island assets.
There are enhanced cereulide testing measures are extending quality assurance release times and impacting product availability.
Finally, additional clearance requirements and testing measures, including higher inspection and sampling rates for the industry, are extending clearance release times and impacting product availability.
What does this mean for A2 Milk?
It’s working with its supply chain and distribution partners in New Zealand and China to accelerate product flows. But, those above factors are expected to materially impact Chinese label infant formula product availablility in the FY26 fourth quarter.
English label infant formula products are also exposed to this, to some extent, particularly additional clearance requirements. But, this isn’t expected to be impacted during the period.
The company said these impacts are primarily timing-related and one-off in nature, but it’s expected to impact its FY26 guidance.
For FY26, it’s expecting lower infant formula sales, mostly related to Chinese label sales. The company is expecting additional one-off supply chain costs, partially offset through cost saving initiatives. It also expects a delay in cash receipts into FY27, due to the later timing of infant formula sales.
FY26 is now expected to see revenue growth of low to mid double-digits year on year, compared to mid-double-digit growth in previous guidance.
The EBITDA (EBITDA explained) margin is expected to be between 14% to 14.5%, down from previous guidance of 15.5% to 16%.
Net profit is expected to be between “similar to down” on FY25, compared to former guidance of growth.
Final thoughts on the A2 Milk share price
The business is clearly struggling from the current situation, but it sounds to me like they are shorter-term issues that can be overcome.
But, a downgrade of profit expectations is likely bad news for the market view on the company.
However, we can use short-term market upsets to be long-term buying opportunities. If there’s a big sell-off, this could be a buying opportunity. But, at the pre-open price, it doesn’t seem cheap after rising close to 60% since the end of 2024.
