Why did the A2 Milk share price sink 7% in April?

A woman with a sad face looks to be receiving bad news on her phone as she holds it in her hands and looks down at it.

A woman with a sad face looks to be receiving bad news on her phone as she holds it in her hands and looks down at it.

The A2 Milk Company Ltd (ASX: A2M) share price had a tough time in April.

During the month, the infant formula company’s shares lost almost 7% of their value.

This means A2 Milk shares are now down almost 23% since the start of the year.

Why was the A2 Milk share price under pressure in April?

The A2 Milk share price was trading largely flat for much of the month until the release of an announcement late on.

That announcement was made in response to a profit guidance downgrade by its dairy processing partner, Synlait Milk Ltd (ASX: SM1).

Synlait pointed the finger at A2 Milk for its downgrade, which led to the infant formula company responding with a trading update.

A2 Milk revealed that it has lowered its total forecast production volume needs for English label consumer-packaged infant milk formula by ~1,650 metric tonnes for the period March through to June.

This was driven by significant daigou weakness, inventory build-up, and distribution model adjustments. The broker explained:

This is mainly due to: continued weakness in the ANZ Daigou / reseller market which is down 49% in the most recently reported quarter from Kantar; the impact of significant cumulative delays in English label consumer-packaged IMF deliveries from Synlait to a2MC over an extended period expected to be fulfilled in 4Q234 resulting in a material amount of inventory arriving within a relatively short period which needs to be managed; and ongoing refinement of the Company’s English label distribution model resulting in more customers and distributors being supplied directly out of Hong Kong and China leading to lower future a2MC and channel inventory requirements.

And while A2 Milk reaffirmed its previous guidance for FY 2023, albeit at the low end of its range, investors appear to be wondering what the above means for its performance in FY 2024.

This uncertainty appears to be weighing heavily on sentiment and ultimately the A2 Milk share price.

The post Why did the A2 Milk share price sink 7% in April? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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