The a2 Milk Company shares pulled back to start the week, closing 3.26% lower at A$6.53, after full-year results revealed strong top-line expansion but a profit squeeze. Fourth-quarter supply chain breakdowns in its critical China infant formula business were flagged as an issue, prompting markets to apply further pressure to a stock that now sits 28.87% lower since the start of 2026.
The sell-off came despite the company reporting revenue growth of 12.4% to NZ$1,974.9 million for the financial year ending June 2026. Markets focused instead on the 5.8% decline in reported net profit after tax to NZ$207.5 million and a 2.5% drop in EBITDA to NZ$284.4 million, both weighed down by operational disruptions in the company’s highest-margin China label infant milk formula segment during the final quarter.
Why are a2 Milk shares down?
With net cash of NZ$784.5 million, down 26.1% year on year, and a total dividend payout including a 41.36 cent per share special dividend, the balance sheet remains robust, yet markets are pricing in heightened execution risk as the company navigates a major supply chain transformation.
A2 Milk’s FY26 revenue growth was powered by strong performance across English label infant milk formula, Other Nutritionals, and Australia-New Zealand liquid milk, with each category posting significant year-on-year gains. Underlying EBITDA rose 5.4% to NZ$307.6 million, and underlying net profit after tax increased 7% to NZ$235.8 million, reflecting the company’s operational performance when adjusted for one-off items. Ordinary dividends totalled 21 New Zealand cents per share, up one cent on the prior year, alongside the substantial special dividend.
However, the headline profit decline was driven by material disruption to China label infant milk formula sales in the fourth quarter. Management attributed the shortfall to a confluence of operational challenges: strong demand earlier in the year that drew down channel inventories, freight bottlenecks, production backlogs at manufacturing partner Synlait, longer product release times, and additional customs clearance and testing requirements in China. The result was a roughly 14% decline in China label IMF sales for the full year, a significant setback in what remains the company’s most valuable and margin-rich product category.
Top Australian Brokers
- Pepperstone - Top Australian broker - Read our review
- eToro - Invest in ASX and international shares - Read our review
The disruption comes as A2 Milk executes a major supply chain overhaul. In August 2025, the company announced the acquisition of a China-registered infant formula manufacturing facility in Pokeno, New Zealand, for approximately NZ$282 million, alongside the divestment of its stake in Mataura Valley Milk for around NZ$100 million. The strategy aims to build a more integrated, higher-growth, lower-risk end-to-end supply chain, capturing additional manufacturing margin and securing capacity. Management expects the transformation to be EBITDA neutral in FY27 before turning positive in FY28, with incremental brand sales exceeding NZ$100 million by FY30.
Yet the transition has proven bumpy. The Pokeno facility contributed EBITDA and NPAT losses of approximately NZ$9.8 million and NZ$10.4 million respectively in the first half of FY26, reflecting low volumes ahead of product transitions and one-off transformation costs. The fourth-quarter China label supply issues appear to have been exacerbated by the complexity of integrating new manufacturing capacity, production scheduling, and regulatory release processes.
Bright spots provide a boost
The A2M share price rebounded 7% intraday from a low of A6.10 almost immediately out of the gate, as markets found pockets of positivity in the print.
Outside of China label disruption, the company’s performance was notably strong. English label infant milk formula, sold primarily through cross-border e-commerce and online-to-offline channels into China, significantly outpaced China label growth and emerged as a key driver of the top line. Other Nutritionals, including kids and seniors powders launched in FY25, posted growth of around 43% in the first half, demonstrating the company’s success in diversifying beyond infant formula.
The Australia and New Zealand liquid milk business continued to capture market share, supported by product innovation such as lactose-free offerings. In the United States, revenue surged 28.6%, with the business achieving break-even in the second half while brand awareness and household penetration increased. The U.S. inflection marks a strategic milestone, shifting the region from a multi-year cash drag to a breakeven, high-growth platform that could reduce the company’s dependence on China over the medium term.
Management has confirmed that the operational issues affecting China label IMF have now been substantially resolved, with stock levels at distributors and retailers back to targeted levels across both China label and English label channels. The company is actively rolling out sales and marketing programs to win back previous China label users and accelerate new customer recruitment, which will be critical to the FY27 recovery narrative.
What Lay Ahead For A2M?
Looking to FY27, A2 Milk expects revenue and EBITDA to increase, supported by new product launches, expansion into new markets, and the stabilisation of infant milk formula sales. The company projects recovery in China label IMF over the coming year, with further momentum in English label channels anticipated during the first half. Capital expenditure is forecast at around NZ$70 million, with ongoing investment in innovation, sustainability, and supply chain transformation. Management will provide a detailed update on the IMF recovery plan at the Annual General Meeting in November, a key catalyst that markets will watch closely.
The guidance represents a vote of confidence from management that the fourth-quarter disruption was a one-off operational misstep rather than a structural loss of market share. However, the bar for execution has risen significantly. Any further slip in China label volumes or delays in the Pokeno ramp-up could be punished by markets that have already endured a sharp valuation reset.
The company’s strong balance sheet and commitment to shareholder returns, evidenced by the special dividend, provide some downside protection and anchor the valuation with tangible cash flows. Yet the FY26 result has reminded markets that despite progress in portfolio diversification, the investment case still hinges on the stability and growth of China infant milk formula.
Despite the lower close today for a2Milk shares, there will be plenty for bulls to cling to in the intraday reaction, with a 7% move off the lows. Down 28% so far this year, yet 33% up off the 52 week lows from June, the whipsaw here will prove too much for many. Plenty for both bulls and bears to debate once more.
