Bega Cheese shares hit after profit warning from Covid-19

The owner of Vegemite and Pura Milk tumbled 13 per cent after saying Covid-19 related costs will hit full year earnings.

Bega Cheese executive chairman Barry Irvin on his Bega Valley dairy farm. Picture: Robert Hayson/supplied.

Bega Cheese shares have been pummelled after the dairy giant predicted earnings for the 2022 financial year to be well below market estimates.

The company said its normalised earnings before interest, tax, depreciation and amortisation for the financial year ending June 30, 2022 would be in the range of $195m to $215m. That implies a 63 per cent increase compared to its fiscal 2021 earnings of $141.7m.

However, its share price plunged as the midpoint of its forecast range was 7.5 per cent below the consensus estimate of $221.7m, according to Bloomberg.

Bega shares were down 12 per cent at $4.94 at 12.00pm on Thursday – on track for their worst day since March 2020 - after falling as much as 13 per cent to a two-year low of $4.92.

The company said that it has been “very focused on managing the cumulative effect of the direct and indirect costs associated with Covid-19.”
And while some of those costs would be offset by improved market returns and the cessation of a number of one off expenses, it warned that the timing of both price increases and the removal of Covid-19 related costs would affect business performance in FY2022.
And despite positive seasonal conditions, farm milk supply across the industry remains flat to declining with strong competition for supply continuing, it added.

“The company expects upward pressure on farm gate milk prices to remain for the balance of the year reflecting high global dairy commodity prices, limited supply availability and the resultant competitive circumstances,” Bega said in a statement to the ASX.

The owner of iconic Aussie brands, including Vegemite, Yoplait, Pura Milk and Farmers Union, still said it was “comfortable with the overall operations” despite cost and pandemic pressures.

But the short term impacts of Covid-19 and a highly competitive milk procurement environment are expected to “impact” FY2022 earnings, it said.

The company added that while the diversity of the Bega Cheese business had helped them to manage the changes and challenges associated with the impact of Covid, the impacts would still be “extensive and significant.”
These include market disruption in Australian food service channels as a result of lockdowns, structural change in the Chinese infant and toddler dairy nutritional market, significant operational disruption including factory shutdowns, major changes to operations and logistics scheduling, increased safety and testing regimes, major cost increases and shortages across the entire supply chain.