The company, which supplies infant formula maker A2 Milk, is forecasting its full year result to range between a loss of $5 million and a profit of $5m. Photo: 123RF
South Island dairy company Synlait has drastically cut its earnings guidance on falling demand and higher costs.
The company, which is a key supplier to infant formula maker A2 Milk, is forecasting its full year result to range between a loss of $5 million and a profit of $5m, significantly worse than last month's estimate of a profit between $15m and $25m.
It was also well below Synlait's profit last year of $38.5m.
Last month's revised forecast itself was a big drop from its previous guidance issued in December, when it said profit would be similar to pre-2021 levels of $75.2m.
This morning's announcement came after Synlait shares were placed in a trading halt on Friday while it assessed "new information".
That new information was detailed today, with the company saying it faced further demand reductions from its advanced nutrition segment, mostly from one of its customers, affecting infant formula volumes and base powder production.
Synlait did not name the customer, but it was understood to be A2 Milk.
Synlait said the demand reductions were expected to result in a $16.5m hit to net profit in the current financial year.
It said the remainder of the profit impact (around $3.5m) was due to other factors, such as higher financing and supply chain costs.
A2 Milk surprised at level of Synlait guidance cut
A2 Milk noted it was "indirectly" referred to in Synlait's announcement, and said it was "surprised at the extent of the reduction in Synlait's guidance range".
"In the two forecasts provided to Synlait by A2 Milk since Synlait's previous guidance update on 17 March 2023, A2 Milk has lowered its total forecast production volume needs for English label consumer-packaged infant milk formula in respect of March, April, May and June 2023 production months by 1650 metric tonnes in aggregate," A2 said.
A2 said this equated to less than 5 percent of Synlait's reported advanced nutritional sales volumes over the 12 months ended January.
A2 said there was no material change to its full year outlook, and maintained revenue guidance of low-double digit percentage growth, but said its English label infant formula revenue was now expected to be lower.
Synlait shares resumed trading when the market opened this morning, falling 14 cents or 6.5 percent, to their lowest level since August 2015.
A2 Milk shares fell 2.6 percent in early trade.