A2 Milk chief executive Geoff Babidge has upgraded the company's earnings forecasts. Photo / NZ Herald
A2 Milk chief executive Geoff Babidge has upgraded the company's earnings forecasts. Photo / NZ Herald
A2 Milk expects revenue for the full year to lift by 30 per cent to around $1.7 billion due to strong sales growth as consumers rushed to fill their pantries with infant formula as a result of the Covid-19 pandemic over the March quarter.
The alternative milk company said infantformula sales in Australia and China were particularly strong.
In an earnings update, the company said it had continued to experience strong revenue growth across all regions since the release of its six-month result in late February.
It lifted its earnings margin forecast 31 to 32 per cent for the year to June from an earlier advised 30 per cent.
Chief executive Geoff Babidge, who has a reputation for erring on the conservative side, said the company was benefiting from the unusual combination of pantry stocking, a very weak exchange rate, and lower costs -- all consequences of the Covid-19 outbreak.
"Since then (February), the company has continued to experience strong revenue growth across all key regions, particularly in respect of infant nutrition products sold in China and Australia," a2 Milk chief executive Geoff Babidge said in a statement.
"This primarily reflected the impact of changes in consumer purchase behaviour arising from the Covid-19 situation and included an increase in pantry stocking of our products particularly via online and reseller channels," he said.
A2 Milk's share price has been rocketing higher in recent weeks, as the market anticipated higher sales in China arising from the Covid-19 pandemic.
Harbour Asset Management senior research analyst Oyvinn Rimer said A2 Milk's turnover guidance was in line with brokers' upgrades issued since the last result in February.
"It's a very solid update, but they do have a lot of caveats in place."
Among those caveats, A2 Milk said it was unable to estimate the timing and extent to which pantry stocking may unwind.
The company said its China revenue, transacted in US dollars, was favourably impacted by a significant depreciation of the New Zealand dollar to the US dollar in the quarter.
Overhead costs were tracking lower than previously expected due to travel restrictions and some planned recruitment, particularly in China, being temporarily delayed.
The business had benefited from the support of all its strategic partners who have assisted in managing the various supply chain challenges which have arisen during recent months, he said.
Babidge said that, given the COVID-19 situation, "the outlook for both revenue and earnings remains uncertain".
"It is unlikely that these factors will be sustained as these unprecedented circumstances begin to unwind," he said.
A2 Milk chief executive Geoff Babidge has upgraded the company's earnings forecasts. Photo / NZ Herald
"Furthermore, significant uncertainty remains around the potential impact on supply chains and consumer demand in our core markets and the resulting financial impact on our performance for the balance of the financial year," he said.
The share price spiked $20.30 in the aftermath of the release - equalling its record high - but later retreated to $19.60.
Commenting on talk in the markets that New Zealand may be gaining some consumer recognition from its handling of the Covid-19 crisis, Babidge said it "made sense".
"You could also assume that could only bode well for the New Zealand sourcing of product." he said.
"Clearly the uplift that we have seen in the first quarter was beyond our expectations, and its difficult to forecast in these uncertain times," he said.
"As a company we understand that we are in a very fortunate position compared to many others," he said.
"All of our employees understand that, so we are very conscious of that as we continue to manage the business."
Strength in the share prices of a2 Milk, and the Fisher and Paykel Healthcare - have acted helped to shield the sharemarket from more severe falls as markets worldwide suffer extreme Covid-related volatility.
The two stocks together make about 30 per cent of the S&P/NZX50 index.
