Coronavirus drives A2 Milk sales jump as parents stock up for isolation
Parents loading up pantries with infant formula has delivered third quarter sales above expectations for dairy group A2 Milk.
Coronavirus-fuelled pantry stockpiling and a tumbling New Zealand dollar are delivering a earnings boost for trans-Tasman dairy brand A2 Milk, with the company recording higher than expected sales during the March quarter.
The company is now expecting a profit margin for the full year of between 31-32 per cent, up from the guidance of 29-30 per cent delivered in February.
Meanwhile, it is forecasting total revenue of $NZ1.7bn ($1.61bn) to $NZ1.75bn, up from $NZ922.7m last financial year.
Chief executive Geoff Babidge said sales in the three months to March 31 were higher than expected, with the company’s products, including Platinum infant formula, among the many goods stripped from supermarket shelves amid pandemic panic buying.
“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,” Mr Babidge said of the sales boost.
“We are unable to estimate the timing and extent to which pantry stocking may unwind.”
He said it was unknown how long the sales bonanza would last.
“It is unlikely that these factors will be sustained as these unprecedented circumstances begin to unwind.”
The upgraded profit margin guidance comes after former chief executive Jane Hrdlicka warned at the group’s full year results last August that an increase in marketing would lead to EBITDA margins falling from 31.7 per cent in 2019 to about 28 per cent in 2020.
But Mr Babidge said on Wednesday that the company’s planned $NZ200m spend on marketing this financial year was key to keeping its profit margin above 30 per cent. He said a lower NZ dollar against the US currency and lower costs stemming from travel bans and recruitment delays also supported profitability.
“Overall for FY20, we anticipate ongoing revenue growth across our key regions supported by increased levels of marketing investment in China and the USA as well as, to the extent practicable in the current circumstances, the ongoing development of our organisational capability to support the execution of our strategy,” Mr Babidge said.
“Overhead costs are now tracking lower than previously expected due to travel restrictions and some planned recruitment, particularly in China, being temporarily delayed.”
Sales of A2 infant formula in China were already rising pre-coronavirus, soaring 100 per cent to $NZ146.7m in the six months to December 31.
“Our business has benefited from the support of all our strategic partners who have assisted in managing the various supply chain challenges which have arisen during recent months,” Mr Babidge said.
“We support the actions of the various governments in the countries in which we operate in responding to the COVID-19 pandemic. We will continue to closely monitor the situation and remain vigilant to the ongoing advice of authorities.”
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