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)
