Earnings Update: The a2 Milk Company Limited (NZSE:ATM) Just Reported And Analysts Are Trimming Their Forecasts

It's been a sad week for The a2 Milk Company Limited (NZSE:ATM), who've watched their investment drop 13% to NZ$9.69 in the week since the company reported its half-year result. a2 Milk reported in line with analyst predictions, delivering revenues of NZ$677m and statutory earnings per share of NZ$0.16, suggesting the business is executing well and in line with its plan. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

See our latest analysis for a2 Milk

Taking into account the latest results, the 14 analysts covering a2 Milk provided consensus estimates of NZ$1.39b revenue in 2021, which would reflect a not inconsiderable 13% decline on its sales over the past 12 months. Statutory earnings per share are forecast to plummet 27% to NZ$0.32 in the same period. In the lead-up to this report, the analysts had been modelling revenues of NZ$1.47b and earnings per share (EPS) of NZ$0.38 in 2021. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a substantial drop in earnings per share estimates.

It'll come as no surprise then, to learn that the analysts have cut their price target 14% to NZ$11.71. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values a2 Milk at NZ$16.30 per share, while the most bearish prices it at NZ$8.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 13%, a significant reduction from annual growth of 34% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 12% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - a2 Milk is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for a2 Milk going out to 2025, and you can see them free on our platform here.

And what about risks? Every company has them, and we've spotted 1 warning sign for a2 Milk you should know about.

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