New Zealand's a2 Milk tumbles on weak earnings forecast, profit miss

Aug 17 (Reuters) - New Zealand's a2 ‌Milk forecast weak ​annual ​earnings on Monday after missing market expectations for fiscal year 2026 due to supply-chain disruption in its China-label business, sending its shares plunging more ‌than 10%.

Strong third-quarter demand, production backlogs, and higher freight costs disrupted supply ⁠and caused shortages of China-label infant milk formula (IMF) in the June quarter, forcing existing users to switch ‌to alternative brands, the Auckland-based ‌dairy firm said.

As a result, revenue from China-label IMF sales declined 14% to NZ$544.3 million ($320.59 million) in the year ended June 30.

Stock levels have since "significantly improved", the ​company said, adding that it was working to win back lapsed customers and attract new ones.

The company expects the disruption impact to continue into fiscal 2027, ⁠projecting revenue growth in the mid-single-digit percent range, down from 12.4% in 2026. Earnings margin is expected to be ​15% but "materially down" from the six months through December 2026.

"The recovery from the supply-chain disruption will take longer than expected and the ​FY27 revenue growth guidance of mid-single digits (skewed to 2H ‌as 1H is flat) is underwhelming compared to the multiple that the stock trades on," Citi analysts said in a note.

Shares of ⁠a2 Milk fell as much as 10.2% to NZ$7.39 in early trade, hitting their lowest since mid-June and marking their biggest intraday percentage drop since early May. The broader S&P/NZX 50 ⁠benchmark index was last down 0.5%.

Annual net profit attributable dropped 44% to NZ$113.6 million, missing the ​Visible Alpha consensus estimate of NZ$121 million. On an underlying basis, full-year profit rose 7% to NZ$235.8 million.

The company said English-label offtake momentum was expected to improve in the first half, supported by ‌increased marketing activity.

Citi noted the company's progress in becoming less dependent on China-label IMF growth.

Revenue from its largest market, China & other ‌Asia, rose 11.2% to NZ$1.45 billion, led by English-label IMF products.

The company declared a final ⁠dividend of 9.5 New Zealand cents ‌per share, down from 11.5 ​cents a year earlier.

($1 = 1.6978 New Zealand dollars)

(Reporting by Shruti Agarwal and Anjali Singh in Bengaluru; Editing by Edmund Klamann, Chizu Nomiyama and ‌Subhranshu Sahu)

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