The A2 Milk Company Ltd (ASX: A2M) share price has sunk 18% after reporting its FY24 result.
This business is one of the leading infant formula businesses in the Asia Pacific region. It also sells a number of other dairy products including liquid milk and ice cream.
A2 Milk FY24 result
Here are some of the highlights for the 12 months to 30 June 2024:
- Revenue rose 5.2% to $1.67 billion
- EBITDA rose by 6.9% to $234.3 million, with the EBITDA margin improving 0.2 percentage points to 14%
- Net profit after tax (NPAT) grew by 7.7% to $167.6 million
- Profit / earnings per share (EPS) increased 9.2% to $0.232
- Closing net cash balance improved $211.7 million to $968.9 million
Drilling down into the revenue numbers, in terms of regional performance, the China and other Asia segment grew by 14.1%, the ANZ segment fell 14.6% following a change to the English label infant formula distribution strategy, the USA segment rose by 8.2% and MVM sales dropped 11%.
Looking at the different categories, total infant formula revenue rose 4.6%, with Chinese label up 9.5% and English label down 0.3%. Liquid milk revenue rose 3.3% in ANZ and 7.4% in USA, while other nutritional revenue increased 36.7%.
Growing market share and other highlights
The infant formula revenue in China grew despite the overall Chinese infant formula market being down 10.7% in value, suggesting ongoing market share growth. A2 Milk has achieved a top-5 brand position in the overall Chinese infant formula market, thanks to increased marketing investment and improved brand health metrics.
A2 Milk has reached a 3.5% market share in mother and baby stores (MBS) and 3.9% market value in domestic online (DOL) retail channels.
The business has also stabilised its English label sales, with growth in the FY24 second half and increased overall market share to 20.2%, up from 19% in FY23, with strong growth in cross-border e-commerce (CBEC) channels.
A2 Milk said it improved its US profitability significantly and commenced distribution and infant formula with selected retailers in-store and online under FDA enforcement discretion and progressed long-term infant formula approval, which is on track for FY26, which is subject to FDA approval.
The company recently resolved its dispute with Synlait Milk Ltd (ASX: SM1), including Synlait’s acceptance of the validity of A2 Milk’s notice of cancellation of exclusivity, subject to Synlait completing its capital raising and refinancing of existing banking facilities. A2 Milk has agreed to support and subscribe for shares under Synlait’s capital raising.
A2 Milk said it is progressing the company’s supply chain transformation by gaining access to a potential additional China label infant formula registration slot with Synlait to be developed by December 2029, subject to SAMR approval.
Outlook for the A2 Milk share price
The company has given guidance of FY25 revenue growth in the mid-single digits in percentage terms, while the EBITDA margin is expected to be “broadly similar”.
It’s impressive to see A2 Milk continue to grow revenue considering the difficult circumstances in China, though the market appears to have been expecting more.
Despite the large sell-off today, the company is still up 35% in 2024 to date. So, it appears to be the market readjusting its valuation after a strong run. With the difficulties in the Chinese market, there are other ASX growth shares I’d rather buy, unless A2 Milk can find success in the US.
