A2 Milk Shares Plunge Amid Challenging China Market

A2 milk on a supermarket shelf in Singapore on April 16, 2018. Thomas White/Reuters

A2 Milk shares plunged nearly 19 percent on the market on Aug. 19 amid a challenging outlook in China.

The infant formula company reported a net profit after tax of NZ$167.6 million (US$101.7 million) in the 2024 financial year, up 7.7 percent.

However, A2 Milk said (pdf) it was expecting only mid-single digit revenue growth in the 2025 financial year, which was less than the market expected.

Newborn numbers in China fell 5.6 percent in the 2023 financial year, with longer term decline predicted, A2 Milk noted.

Results Snapshot

Despite this, A2 Milk reported strong growth including a 6.9 percent boost in earnings before interest, taxes, depreciation, and amortisation (EBITDA) to $234.3 million.

Earnings per share rose 9.2 percent to 23.2 cents, while revenue soared 5.2 percent to $1.675.5 billion in the 2024 financial year.

A2 Milk reported a net cash balance of $968.9 million, a 28 percent increase on the 2023 financial year.

On the Australian Stock Exchange, A2 Milk shares descended 18.69 percent on Aug. 19. In contrast, the benchmark ASX 200 index of the top 200 companies in Australia rose 0.12 percent.

For perspective, Synlait Milk shares surged 8.96 percent, while Bubs Australia shares rose 4 percent.

A2 Milk CEO David Bortolussi said, “We continued to execute well against our growth strategy, primarily focused on the China market, delivering positive FY24 results with strong revenue and EBITDA growth.”

Challenges in the Chinese Market

Looking at the Chinese market, A2 milk noted the infant milk formula market fell 8.6 percent in volume and 10.7 percent in value in the 2024 financial year.

“The market decline reflected the cumulative impact of fewer newborns, increased competitive intensity, and challenging macroeconomic conditions,” A2 Milk said.

China label infant milk formula market value fell 12.5 percent, with mother and baby stores channel down 16.1 percent and domestic online channel down 12.2 percent.

“Across China label channels, there was significant pricing pressure impacted by the combination of volume pressure resulting from fewer newborns, the market-wide transition to new GB registered products with clearance of old GB registered products, and challenging macroeconomic conditions,” the company added.

Australia and New Zealand Market

A2 Milk reported liquid milk sales rose 3.3 percent to $190.2 million in Australia, driven by the contribution from lactose free A2 Milk. However, this was offset a little by lower sales from the core milk range.

“This reflects a challenging consumer environment impacted by cost-of-living pressures, with a market shift from branded milk products to private label in the category overall which stabilised during 4Q24,” the company said.

In Australia and New Zealand overall, the company said revenue was down 14.6 percent to $317.3 million, while EBITDA fell 32.6 percent to $63 million.

This was driven by lower infant milk formula sales to the Daigou channel amid a change to the company’s distribution strategy. Daigou channel market value fell 14.3 percent in the 2024 financial year.

Daigou is where an online trader travels to overseas to buy foreign products and resell them in China for at a higher price.

United States

In the United States, A2 Milk reported revenue rose by 8.2 percent to $1,113 million. The EBITDA loss of $15.5 million was an improvement on $23.3 million in the 2023 financial year.

This revenue boost was mostly powered by less promotional activity and growth of the A2 Milk Grassfed product.

Further, the company started distribution of A2 platinum infant milk formula in the 2024 financial year amid the U.S. Food and Drug Administration’s (FDA) short-term approval with selected retailers.

A2 Milk highlighted that accelerating the path to profitability in the United States remains a priority into the future.

“Whilst USA losses have significantly reduced, given the likely investment related to USA infant milk formula, the timeframe to achieve profitability is now more likely to be by FY27, with the USA liquid milk business expected to achieve breakeven contribution margin in FY26,” the company noted.

Future Outlook

Looking to 2025, A2 Milk emphasised that market conditions in China “remain challenging” and the company is expecting a “further market decline” in the 2025 financial year.

At this stage, A2 Milk expects mid single-digit revenue growth in the 2025 financial year compared to the 2024 financial year.

Growth is expected to be influenced by Infant Milk Formula supply constraints, which they expect will be resolved in the first half of 2025.

In the 2025 financial year, A2 Milk is predicting the earnings margin to be similar to the 2024 financial year.

The first half of 2025 is expected to be lower, while in the second half the company predicts the earnings margin to pick up.

Risks including China infant milk formula competition, supply risks, cross border trade, interest rate changes, farmgate milk pricing, commodity prices, and foreign exchange movements, the company said.

“These challenges and risks could materially impact expected revenue and earnings outcomes,” A2 Milk said.