A2 Milk is expected to live up to its reputation of bettering its previous year's record earnings when it reports its annual result on Wednesday.
The only question is: will the company exceed its own earnings forecasts, as has often been the case in the past.
The dairy and infantformula company - the second biggest by market cap on the sharemarket after F&P Healthcare - has a history of strong earnings growth, so analysts expect to see more of the same.
A2 Milk has also been known to err on the conservative side in its forecasting.
In its last earnings guidance issued in April, a2 Milk said it had continued to experience strong revenue growth across all key regions, particularly of infant nutrition products sold in China and Australia.
It said then that it expected revenue for the June year to lift by 30 per cent to around $1.70 to $1.75 billion thanks to strong sales growth as consumers rushed to fill their pantries with infant formula as a result of the Covid-19 pandemic lockdowns over the March quarter.
A2 Milk also lifted its earnings margin forecast 31 to 32 per cent for the year to June from an earlier advised 30 per cent, but a lot has happened since April.
Analysts now say the pandemic may have disrupted the informal daigou trading channels into China - its main engine for growth.
The April update implied full-year ebitda of $527-$560 million, compared with the previous year's ebitda of $413.6m.
Forsyth Barr expects a2 Milk's turnover to come in near the top of the range, at $1.74b, and for normalised ebitda to hit $549.3m.
The broker expects a2 Milk's net profit to hit $383.6m, up from $287.7m in 2019.
Sam Dickie, senior portfolio manager at Fisher Funds, noted that the update had assumed a level of pantry destocking once China came out of Covid-19 lockdowns.
"It's not obvious to us that pantry de-stocking has actually happened, so we think that that guidance range has the potential to be beaten," he said.
Incoming a2 Milk CEO and managing director David Bortolussi. Photo / Supplied
The company has appointed HanesBrands executive David Bortolussi as its managing director and chief executive, based in Sydney, effective from early next year.
He will succeed current CEO Geoff Babidge, who has been filling in since last December, when former Jetstar executive Jayne Hrdlicka left after a short tenure.
Oyvinn Rimer, senior research analyst at Harbour Asset Management said the company had handled the CEO transition well, "but having Geoff Babidge ready to go at short notice was very fortunate".
Rimer said he did not expect major changes to occur under Bortolussi.
In terms of what to expect on Wednesday, Rimer said disruption arising from Covid-19 had complicated matters.
"I have watched this company for a long time and it's been even harder to have a view on where they might land, given all the moving parts," he said.
"Margins will be good, but the sales number will be harder to pin down," he said.
Brokers Forsyth Barr said it had undertaken a "mosaic" of sales channel checks across an array of data sources, industry contracts and market participants.
"A2 Milk ticks a number of boxes, with an attractive growth outlook, defensive product, a track record of execution and large (and growing) net cash position," Forsyth Barr analysts Chelsea Leadbetter and Matt Montgomerie said in a report.
They agreed Bortolussi's appointment was not expected to result in any material shift in strategy.
"At face value, he seems a reasonable hire, however key will be getting confidence in the cultural fit with, what we consider, a strong senior management team," the report said.
Forsyth Barr said there were "encouraging anecdotes" coming out of the United States, where a2 Milk is making a big push, but that its all-important market in China appeared to be mixed.
"Data points and anecdotes suggest a2 Milk's brand sentiment remains strong in China, while market share indicators are weaker than we would like," the report said.
"Piecing together the mosaic supports near-term revenue growth, albeit quantum varies considerably across sources and channels and potentially suggests a weaker run-rate over the past few months," it said.
Forsyth Barr said a2 Milk was well-positioned, but it noted there had been a resurgence of domestic brands, and consumer patriotism, in China and that was an "area of risk".
"Nonetheless, China is a large market and there is nothing at this stage to suggest a2 Milk is out of favour," the report said.
