Bega shares tumbled more than 12 per cent after the dairy manufacturer said drought and farmgate pricing pressure would hurt its milk processing division and overall bottom line in the coming year.
The diversified foods processor said on Wednesday the dairy industry’s overall milk supply would be down more than five per cent this financial year due to the drought ravaging the eastern states, with increased price competition expected around a shrinking milk pool.
Bega revised its earnings guidance to between $123 million and $130 million for the coming year, still up 11 to 18 per cent on the previous year’s $109.6 million.
But analysts had set the company’s consensus guidance for the financial year at about $135.3 million before Wednesday’s announcement.
Bega shares were 70 cents lower, or 12.3 per cent, to $4.98 at 1322 AEDT.
“While the current decrease in milk supply in the Australian dairy industry is creating significant competitive pressure across our entire dairy business, we are very pleased with the integration of Koroit and the forecast performance of that acquisition,” the company said in a statement to the ASX.
The acquisition of Koroit infrastructure is expected to lift Bega’s annual milk intake to between 1.0 and 1.1 billion litres in 2018/19, compared to 750 million litres last financial year, a 34 per cent rise.
Bega’s shares were as low as $4.27 on January 11, 2017, a few days before the company expanded its portfolio and acquired a number of brands including Vegemite.
Stock in the company rose to $5.35 by January 24, and steadily climbed to $7.94 on December 6 of that year.
Bega shares were as high as $7.94 at the end of August this year but its aggressive expansion strategy – including the acquisition of the Mondelez grocery business and the Peanut Company of Australia – have weighed on the food processor.