a2 Milk shares drop 2 pct despite upbeat sales

Jayne Hrdlicka, a2 Milk's new chief executive. Picture/Supplied.

Shares in a2 Milk dropped by 1.95 per cent in early trading on the NZX, despite the alternative milk company releasing an upbeat trading update just before the market's open.

By mid-morning the stock was down 23c at $11.54 after, having earlier opened just marginally down.

The company said it had lifted its annual sales for the June year by 68 per cent, just beating the company's guidance given in May.

A2 Milk said it expected to maintain an earnings margin of about 30 per cent in the coming year, even with increased spending.

The Auckland-based, Sydney-headquartered company said revenue was $922m in the year ended June 30, up from $549.5m a year earlier, and just beating the $900m-to-$920 m forecast in May.

Earnings before interest, tax, depreciation and amortisation was about 30 per cent of sales, implying ebitda of some $277m and up from $143m in the June 2017 year.

A2 had previously said that sales growth was in both nutritional products and liquid milk and that its focus was on gross margin.

Today, the milk marketing firm said it anticipated "further growth in revenue particularly in respect of nutritional products" and planned to lift its marketing spend as a percentage of sales, and take on more staff in China and head office. It also expects one-off costs from the transition of incoming chief executive Jayne Hrdlicka, who starts next week.

Even with those added costs, the company expects the ebitda margin to remain at about 30 per cent in the 2019 financial year.

A2 disappointed investors with its May forecast when it said first-half gross margin of 49.8 per cent was likely to carry through into the second half as expansion plans in the US and China led to higher marketing costs. - with BusinessDesk