Shares in A2 Milk (ASX: A2M) were up around 15% at the open after the Kiwi daily operator posted a much better than expected 1H FY25 result.
Net profit was up 7.9% to NZ$91.7 million, which beat consensus expectations by 10%.
Robust cash conversion and sound management in lowering U.S. losses saw revenue jump 10.1% to NZ$893.8 million which also resulted in good "quality" beating again Citi’s expectations.
Also contributing positively to revenue was double-digit growth in China – where the company continues to grow market share in China label products - and other Asia (up 11.8%) and the U.S. market up 13%.
However, the big increase in Mataura Valley Milk (MVM) revenue was partially offset by a small decrease in A&NZ revenue due to a further decline in the Daigou channel.
Equally exciting for shareholders, with the company's cash balance ballooning to NZ$1,014 million, it announced its first-ever dividend of 8.5c per share, which beat consensus expectations of 7.2c per share.
The company also lifted its FY25 revenue growth guidance from mid to high single-digit, to low-to-mid double-digit percent from the previous year.
Other noteworthy figures today:
- Cash balance is up 28% to NZ$1,014 million.
- Earnings were up 5% to NZ$118.9 million.
- Total infant formula sales grew 7.2%.
- China label sales were 2% higher.
- Liquid milk sales grew 12.1%.
e-Commerce channels
Commenting on today’s results, A2 Milk's CEO David Bortolussi noted the company’s infant milk formula business in China, where the company is a top-5 player and one of the best performing brands – with sales up 7% in a market that declined 6%.
“Our liquid milk business continues to perform well in ANZ and the US with market share gains driven by growth in our core portfolio and innovation in both markets,” says Bortolussi.
“Our distribution transformation continued to focus on e-Commerce channels with the Daigou channel now representing less than 5% of our total infant milk formula business.”
Bortolussi also told investors that the company’s focus on innovation is having an impact with the launch of a2 Genesis – A2’s most premium English label IMF product targeting the rapidly growing HMO segment - with new products targeting the fast growing seniors segment in China.
Looking forward
Looking forward, Bortolussi said obtaining access to additional China label IMF registrations to support future growth and developing its own nutritional manufacturing capability remain critical to the company’s supply chain transformation strategy.
A2 Milk’s market cap is $5 billion making it the 110th largest stock on the ASX; the share price is up 37% in one year and up 20% year to date.
A2M shares appear to be in a near-term uptrend confirmed by its 20-day moving average. Specifically, the 20-day moving average is rising and implies that investors see an opportunity to profit.
Consensus is Moderate Buy.
Citi forecasts a full year FY26 dividend of 18.72 cents and EPS of 26.57 cents and the current consensus EPS estimate of 26.1, implying annual growth of 12.5%.
