A2 Milk shares rise on back of first quarter revenue

A2 Milk’s first quarter sales met expectations on the back of growth infant formula and milk. The shares rose 4% on the update.

The Auckland-based, Sydney-headquartered company reported revenue of $112.5 million in the three months ended September. Sales of fresh milk in Australia and New Zealand were up 7% from a year earlier.

Chief executive Geoffrey Babidge says there has been "continued and consistent growth" in consumer demand for its A2 Platinum infant formula, despite research reports suggesting demand would be volatile.

In August, A2 reported total sales of $352.8 million in the 2016 financial year, up from $154.8 million.

In China, the company is "well progressed" in its preparation for changes to the infant formula regulation process which are being overseen by the Chinese food and drug administration, with registration required by January 1, 2018. A2 says it is now awaiting final guidelines for submission from the CFDA.

Demand had grown in both direct and cross-border e-commerce trade into China, and A2 has engaged what it calls a leading China-based consultancy to assist in building market intelligence and scenario planning for the medium term.

In the United Kingdom, fresh milk sales were up 50% compared to the same period a year ago, although it has had to change some product lines for key retailers to reflect consumer demand for semi-skimmed milk. This is the most popular milk in Britain and has a fat content of about 1.7%.

A2 reported positive earnings before interest, taxation, depreciation and amortisation in the UK in the final quarter of the last financial year, and expects this to continue for the full-year 2017.

Sales in the US are described as "improving" in the key accounts of Whole Foods Northern California, Ralph's and Sprouts, while it has also gained new accounts in Target and Trader Joes in California.

The Australian legal case between A2 Milk and drinks giant Lion, which centres on the scientific evidence around the benefits of milk comprised solely of A2 Milk proteins, is due to be heard in November next year, Mr Babidge says.

Shares of A2 Milk rose 4% to $2.05, a rise of 8c. They've risen 5.9% since the start of the year.

(BusinessDesk)