a2 Milk Annual Profit Falls 44% as China Formula Shortages Hit Sales
Synopsis
a2 Milk posted a sharp decline in annual profit after supply chain disruptions reduced sales of its China-label infant formula, though underlying earnings and broader Asian revenue remained resilient.
New Zealand dairy company a2 Milk reported a 44% decline in full-year net profit after supply chain disruptions led to shortages of its China-label infant milk formula (IMF) and prompted many customers to switch to rival brands.
For the year ended June 30, net profit attributable to shareholders fell to NZ$113.6 million, down from NZ$202.9 million a year earlier. Its also quite below the analysts' expectations of NZ$121 million.
The company said production backlogs, stronger-than-expected third-quarter demand and higher freight costs reduced product availability during the final quarter, thus affecting sales in one of its most important markets.
While the disruption weighed on earnings, a2 Milk said inventory levels have since improved and it is focused on winning back former customers while expanding its user base in China.
Supply Disruptions Dent China-label Formula Sales
Revenue from China-label infant milk formula fell 14% to NZ$544.3 million with shortages during the June quarter forcing many consumers to purchase competing brands after products disappeared from retail shelves.
The company attributed the disruption to a combination of robust demand, production delays and elevated freight costs which together created inventory shortages across its China-label business. Despite these challenges, a2 Milk said supply has now largely stabilised and efforts are underway to restore market availability and rebuild customer loyalty.
Underlying Earnings Remain Resilient
Although statutory profit declined sharply, underlying full-year profit increased 7% to NZ$235.8 million. It reflects stronger performance across other parts of the business.
a2 Milk's revenue from China and other Asian markets rose 11.2% to NZ$1.45 billion, driven by higher sales of its English-label infant milk formula products. The result highlights continued demand for the company's premium dairy products despite short-term supply constraints affecting one product category.
The company also announced a final dividend of 9.5 New Zealand cents per share, down from 11.5 cents a year earlier which reflects the weaker statutory earnings for the financial year.
With inventory levels improving and customer recovery efforts underway, a2 Milk will be looking to regain momentum in its core China market while strengthening supply chain resilience to avoid similar disruptions in the future.
Source: Reuters
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