A2 Milk lifts guidance for full-year sales, earnings as trading exceeds targets

A2 Milk [NZX: ATM] raised its guidance for full-year sales and earnings, saying trading is exceeding its targets and the milk marketing company is well placed to cope with changes to regulations for infant formula in China.

The share price immediately leapt and by 11.30am was up 28c at $1.85 for a 17.8% gain.

A2 says full year revenue is forecast to be in a range of $350-360 million in the year ending June 30, from a previous forecast of $335-350 million. Operating earnings before interest, tax, depreciation and amortisation are projected to be $52-54 million, up from the $45-49 million range it gave with its first-half results in February.

The improved guidance is dependent on recent trading conditions continuing and no material change in market conditions, the company said in a statement. A2 was "well placed to cope with changes to infant formula regulations in China announced in recent months including taxation of cross-border e-commerce (CBEC) traded commodities, publication of product lists for CBEC traded commodities through China free-trade zones and an infant formula registration rule for domestic and imported infant formula products in China.

A2 has "previously advised that it considers itself well-placed to respond to changes in the infant formula regulatory environment in China," it said. "The company continues to adjust and evolve its manufacturing and distribution model in response to such changes. In particular, the company remains of the view it is alert and well placed to respond to other potential changes in the regulatory environment."

As a result, it "continues to perform strongly compared to its plan in the second half of the 2016 financial year," A2 said. The company also expects its balance sheet to be stronger by year-end, reflecting improved operating cash flow in the second half with cash on hand likely to exceed $50 million.

Shares of A2 have soared 170% in the past 12 months. The stock is rated a 'hold' based on the consensus of four analysts compiled by Reuters. A2 is scheduled to join the S&P/ASX 200 Index at the close of trading on June 17.

(BusinessDesk)