Bega Cheese cuts earnings forecasts

Bega Cheese has downgraded its earnings guidance amid growing pressure from higher milk prices.

A Bega cheese factory. Picture: AAP

Dairy company Bega Cheese has warned investors that increasing pressure from higher milk prices will hit its earnings.

Bega has told the market that due to greater competitive pressure from processors, it now expected normalised earnings before interest, tax, depreciation and amortisation for the full-year to be between $113 million and $117m. That is down from its previous guidance of between $123m and $130m.

“There has been greater competitive pressure from processors and this pressure has never been stronger than in the last quarter of fiscal 2019 and in setting the fiscal 2020 milk price from July 1,” Bega said in its market announcement.

Shares in Bega closed 4.2 per cent lower at $4.24 yesterday after the earnings downgrade.

The Australian-listed company also outlined that it had achieved a record milk intake in fiscal 2019 of 1.06 billion litres, a 41 per cent increase on the prior year.

It also said it had increased its market share of the Australian milk pool from 8.1 per cent to 12.4 per cent, while the market had contracted 7.9 per cent due to the drought and exit of farmers.

“The Bega Cheese strategy is to be well positioned to ensure the changes in the milk supply landscape are reflected in greater production and logistics efficiency and to retain and grow a loyal supplier base in addition to adding quality earnings from non-dairy streams,” the company told the market.

“This positioning will come at a cost during fiscal years 2019 and 2020.”

Earlier this month Morgans analysts trimmed their forecasts on Bega, saying that competition forced processors to “overpay” for milk, and that dry conditions and increased farming costs were expected to result in a decline in Australia’s milk supply in fiscal year 2020.