A2 Milk shares down after announcement

Damian Foster.
Damian Foster.
A2 Milk's shares took a 20% plunge yesterday, despite the company announcing a 70% increase of revenue to $660million for its nine months' trading to March.

Forsyth Barr broker Damian Foster said after a very strong run, where A2 Milk's share price hit a high of $14.62, yesterday's decline was due to some profit-taking.

A2 Milk's chief executive Geoffrey Babidge said the performance reflected continued sales growth in both nutritional products and liquid milk, and included seasonal sales from some key China selling events.

A2's shares dropped $2.60, to $10.49 after the announcement, but were still up 276% on a year ago.

A2 Milk's announcement had signalled an increased spend on marketing, which shareholders were likely to see as detracting from revenue.

Revenue for the full year to June was expected in a range of $900million to $920million, Mr Babidge said.

He said total marketing investment was now expected in the range of $82million to $87million for the full year, with higher expenditure primarily in the US and China businesses during second-half trading.

Mr Foster said the $660million revenue was a ''slight miss'' on revenue growth expectations.

A2's share price had been steadily increasing in recent months, in anticipation of further growth upgrades, he said.

''Although A2 are still expecting strong revenue growth in their second-half 2018 guidance, the announcement missed lofty market expectations and included a material rise in marketing costs,'' Mr Foster said. Marketing expenses had been expected in a range of $61million to $66million.

''Revenue growth remains strong, albeit slightly weaker than market expectations, while marketing expenditure should support future growth in the key China market,'' Mr Foster said.

A2 Milk's full-year revenue guidance suggested second-half growth would be around 60%-65%, Mr Foster said.

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