a2 Milk FY26 results: China formula recovery in focus

Summary

The a2 Milk Company (ASX:A2M) reported FY26 revenue from continuing operations of NZ$1.9749 billion, up 12.4% from NZ$1.7572 billion in FY25. Reported EBITDA fell 2.5% to NZ$284.4 million, while underlying EBITDA rose 5.4% to NZ$307.6 million. Net profit after tax from continuing operations fell 5.8% to NZ$207.5 million, but underlying profit rose 7.0% to NZ$235.8 million.

Infant formula revenue was about NZ$1.334 billion, up 4.7%; liquid milk revenue was NZ$421.9 million, up 21.8%; and other nutritionals were about NZ$216.1 million. By region, China and other Asia revenue was NZ$1.4476 billion, Australia and New Zealand NZ$348.2 million, and the US NZ$179 million. The company said a disruption to supply arrangements disclosed in August 2026 for 4QFY26 reduced available supply of China-label infant formula products and pushed up supply chain costs, and management has outlined measures to restore distribution and rebuild sales.

Products launched in recent years contributed more than half of FY26 sales growth, and further launches are planned in 1HFY27. The company expects China-label products to recover gradually in FY27, with English-label shipments targeted to improve in the first half of FY27. Initiatives include product innovation, marketing campaigns and a manufacturing transition at its a2 Pōkeno plant in New Zealand; these remain operational targets rather than completed outcomes.

Net cash was NZ$784.5 million as at 30 June 2026, down from NZ$1.0612 billion at the end of the prior year. FY27 guidance anticipates mid-single-digit revenue growth and an EBITDA margin of about 15%. The stock closed at A$7.00 on 26 October 2026, up about 1.30% from the previous trading day.

Commentary

a2 Milk's FY26 results reflect structural changes in China's infant formula market. As one of the few New Zealand dairy brands differentiated by A2 protein positioning, a2 derives more than 70% of revenue from China, and the supply disruption to its China-label products in the fourth quarter directly weighed on overall EBITDA. The episode highlights the vulnerability of relying on a single market and a high-value category.

Across the industry, China's formula market has entered a phase of stock competition, with falling birth rates shrinking demand and domestic brands such as Feihe and Yili continuing to squeeze foreign share through channel expansion into lower-tier markets and localised marketing. a2's new product launches have contributed more than half of sales growth in recent years, showing a shift from a single blockbuster to a product matrix, but supply chain bottlenecks and cost pressures from the manufacturing transition could erode margins. For NZ SMEs, a2's case suggests that entering China's high-value food market requires balancing growth with operational resilience, especially the compliance costs of localised labelling and cross-border channels.

Meanwhile, liquid milk revenue grew 21.8%, indicating non-formula categories could become a new growth engine—offering NZ smaller dairy firms a differentiation path: avoid the red ocean of formula dominated by giants and move into high-value liquid milk or functional nutritionals. a2's net cash fell from NZ$1.06 billion to NZ$780 million, partly used for the Pōkeno plant transition, and such heavy asset investment carries uncertain returns during demand volatility. FY27 guidance of mid-single-digit growth and a 15% EBITDA margin implies the company is entering a steady recovery phase, but the pace of China-label product recovery and the performance of English-label cross-border channels remain key variables.

Keywords: a2 Milk, FY26 results, China-label infant formula, revenue growth, EBITDA, Pōkeno plant, FY27 guidance, supply chain disruption, liquid milk, net cash

Photo by holgerheinze0 on Pixabay

Source: Kalkine