Earnings Flurry | A2 Milk Guidance Disappoints

28 August 2021

Global markets were lower overnight, with US markets slipping (S&P 500 -0.5%) as investors anticipate a Hawkish tone from the Federal Reserve around plans to pull back on monetary stimulus at tonight's central banker gathering. There was added geopolitical tension after two blasts outside the airport in Kabul killed dozens.

All sectors except one were in the red, with Energy stocks hardest hit, while real estate stocks were a touch higher. In stock specific news, discount retailers Dollar Tree (-12.0%) and Dollar General Corp (-3.7%) tumbled after they flagged higher transportation costs. Software company Snowflake (+7.4%) and Salesforce (+4.7%) were up  after delivering better than expected earnings and guidance.

European Markets fell overnight (The Stoxx 600 index, -0.3%) as rising covid cases and inflation concerns weighed on the market. 

A2 Milk (:NZX / A2M:ASX)

A2 Milk shares slumped -11% yesterday after delivering a weak result which was mostly expected by the market. A2 revenue fell -30% from last year down to $1.21 billion at the low end of its third downgrade to guidance in less than a year, and a net profit was down 79.5%  to $80.7m. However, given how its shares have recovered since the last downgrade, there seemed to be a glimmer of optimism by investors hoping for a turnaround or upbeat guidance – which wasn’t given.

Management stated that over the near-term there is still a high level of uncertainty and volatility in A2 Milk’s consumer markets resulting from covid-19, which clearly didn’t bode well. 

While still profitable with plenty of cash on hand and a strong brand – the stock has value. However at the current juncture we remain HOLD rated due to the near-term challenges and no guidance from management for a clear turnaround plan (we would be buyers at higher levels on more positive news and outlook, which doesn’t seem to be the case at the moment).

On a more positive note, the share price reaction could attract an opportunistic takeover offer from Nestle or another big industry player – with growing rumours around Nestle making a play for A2 after its result.
 

 

   
Australia & New Zealand Market Movers

The Australian market was lower (ASX 200 index  -0.5%) on another busy day of earnings season.

Appen shares slumped -22% after reporting a weak result as well as lowered it guidance for 2022 financial year.

Costa Group slipped -4.4% after reporting weaker than expected result as covid-19 related costs hurt earnings, while a strong international performance offset struggles on the domestic market which was flagged earlier. 

Qantas shares were up +3.5% despite reporting $2.3 billion loss the airline confident international travel can resume in December. Likewise other travel stocks rose, Flight Centre up +4%, Corporate travel up +1.6% and Webjet up +0.7%.

Woolworth’s shares were up +0.4% after reporting a strong result and lifted its dividend +14% and announced a $2 billio0n off market buyback program.

Blackmore shares were the best performer on the market soaring +15% after reporting revenue in its struggling China division rose +27.8%.

The New Zealand market was down on Thursday (NZX 50 index, -1.1%),  on a day full of disappointing results.

A2 Milk was the biggest faller slumping -11.3% followed by its supplier Synlait shares were also down -6%.

Air NZ shares were down -2.3% after reporting a net loss of $440m, with government subsidies amounting to $333m prevented a loss nearing $1 billion mark.

Tourism Holdings faired much better up +0.9% on a result which had no reason surprised.

Comvita shares climbed +4.4% after the honey producer reported a net profit of $9.5m for the year.

Genesis Energy shares were up +0.4% after delivering a sound result with no major surprises and inline with guidance. 
 

3 Things Markets will be Watching this Week

  1. ​Local corporate earnings is underway. Major names reporting this week include Chorus, Freightways, Boral, Oil Search, Scentre Group, Summerset, Afterpay, Wisetech Global, Meridian, SkyCity, Flight Centre, Link Administration, Next DC, Qantas, Qube Logistics, Ramsay Health Care, Woolworths, Air NZ, A2 Milk and Wesfarmers.
  2. ​COVID & Lockdown updates are front & centre on both sides of the Tasman. 
  3. Globally, economic events this week include US 2nd Quarter GDP data, manufacturing data across Europe and Australia, and the latest retail sales prints in Australia and NZ.
A2 Milk shares slumped -11% yesterday after delivering a weak result which was mostly expected by the market.

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