A2 Milk share price drops despite solid start to FY23

The A2 Milk Company Ltd (ASX: A2M) share price is under pressure on Friday.

In morning trade, the infant formula company’s shares are down 1% to $5.32.

Why is the A2 Milk share price falling?

Investors have been selling down the A2 Milk share price despite the release of a trading update ahead of the start of the company’s on-market share buyback programme.

According to the release, the company intends to commence its on-market share buyback programme on 5 October 2022.

This will run for up to 12 months and could see A2 Milk acquire up to 37.2 million ordinary shares through both the NZX and ASX at the prevailing market price.

Ahead of the start of the buyback programme, management decided to provide investors with a quick trading update.

Trading update

The good news for shareholders is that the new financial year has started in a positive fashion.

Management advised that sales during the first quarter of FY 2023 are expected to be slightly ahead of expectations. This has been driven by favourable foreign exchange movements.

However, the weaker New Zealand dollar does impact its purchasing power and therefore has put a bit of pressure on its cost of sales and cost of doing business. As a result, its EBITDA is only expected to be in line with expectations during the quarter.

The company stated:

By way of a trading update prior to commencing the buyback, the Company has made a positive start to the year, with 1Q23 sales expected to be marginally ahead of plan primarily reflecting the benefit of favourable foreign exchange driven by depreciation of the New Zealand Dollar (NZD). Due to the currency impact on cost of sales and cost of doing business, notwithstanding the benefit to sales, 1Q23 EBITDA is expected to be in line with plan.

Looking ahead, the company continues to highlight that a number of factors could impact its performance over the remainder of the financial year. These include “COVID-19 impacts on supply chain, SAMR registration process timing, volume impact of price increases, foreign exchange movements, cross border trade, changes in the regulatory environment, and commodity prices.”

Time will tell if A2 Milk can build on its solid start in the coming quarters.

The post A2 Milk share price drops despite solid start to FY23 appeared first on The Motley Fool Australia.

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More reading

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• A2 Milk shares: Buy, hold, or fold?
• Could the A2 Milk share price be ready to leave the ‘doghouse’?

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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