a2 Milk Comes Out The Other Side Of A Supply Chain Crisis

Fund managers track a resolved China Label disruption and a US recall, now offset by a $300 million special dividend

13 Jul 2026 · 7 min read

After a brutal few months, a2 Milk Company gave investors a reassuring update in July 2026. Pendal Group reported the company confirmed that supply chain issues in its China Label infant formula business have largely been resolved, with FY26 net profit after tax now expected to be slightly higher than FY25, an improvement on the flat-to-down guidance issued back in April. The manager said attention has now shifted to FY27 and the pace at which customers lost during the China Label disruption return to the brand, noting English Label formula, other nutritionals and liquid milk all grew strongly through the disruption, underlining the group's increasing diversification.

A supply chain crisis and a product recall in quick succession

The turnaround follows a genuinely difficult stretch. Ellerston Capital reported the stock fell 13 per cent on the day of an April 2026 trading update, part of a 26 per cent monthly decline, after cereulide testing requirements added four weeks to the supply chain just as a backlog of unfilled purchase orders from key supplier Synlait Milk, compounded by manufacturing issues and the recent sale of its North Island plant, left a2 Milk without enough product to sell into China. Perpetual Asset Management detailed the full list of headwinds behind the downgrade: production backlogs from Synlait's reduced capacity, new testing standards lengthening product release times, additional customs sampling following an arachidonic acid recall at a competitor, and higher freight costs partly tied to the US-Iran conflict. FY26 guidance was cut to EBITDA margins of 14 to 14.5 per cent, down from 15.5 to 16 per cent, with net profit after tax now expected flat or below FY2025.

While the direct financial impact was modest (approximately 0.2% of FY26 infant formula sales), markets were spooked by brand damage risk in China. The recall compounded a pre existing supply issue... We had steadily halved our exposure in the 6 months prior to April as the PE jumped as high as 35x.

— Perpetual Asset Management, Monthly Report, May 2026

Barely a month later, a voluntary US recall of three batches of a2 Platinum infant formula, roughly 63,000 tins of an already-discontinued product, triggered a further sell-off. Firetrail Investments said the recall covered an immaterial volume in a non-core market, and after discussions with management felt confident it was isolated and had been contained, while Pendal Group noted no confirmed incidents of infant illness had been reported and the issue affected only around 0.1 per cent of revenue. Even so, Perpetual Asset Management said the stock fell 9.9 per cent on the day of the announcement and 24.15 per cent for the month, as markets focused on the risk of brand damage in China rather than the modest direct financial impact.

A silver lining from the Pokeno acquisition

Some good news emerged from the same corporate move that had originally been intended to reduce supply chain risk. Pendal Group reported in June 2026 that a2 Milk received State Administration for Market Regulation approval for two China Label registrations acquired as part of its Pokeno manufacturing facility purchase, triggering a previously flagged $300 million special dividend of NZ$0.41355 a share, a roughly 4.8 per cent yield, paid on 24 July 2026. The manager said the approval should help expand the company's product range and further reduce its exposure to Synlait.

The record year that preceded the crisis

The disruption stands in sharp contrast to a2 Milk's FY25 performance. Wilson Asset Management reported record revenue of $1.9 billion, up 13.5 per cent, with EBITDA rising 17.1 per cent to $274.3 million and net profit after tax up 21.1 per cent to $202.9 million, driven by English-label infant formula sales up 17.2 per cent and US liquid milk sales up 22.1 per cent. Despite a contracting Chinese infant formula market, the company gained record market share. Ten Cap's February 2026 presentation captured the bull case for why that share gain mattered: with over $900 million on the balance sheet, the manager argued the optionality for buybacks, supply chain investment or bolt-on acquisitions was not fully priced in, setting up what it called a significant re-rate opportunity as the company transitioned from an earnings reset to renewed growth.

Growth is reemerging... This points to market share gain, as well as brand strength. Earnings quality is improving after the earnings reset over the last few years. A2 has a much cleaner operating cost base as well as a more streamlined supply chain.

— Ten Cap, Presentation, February 2026

A split on valuation even before the crisis

Not every manager was convinced even at the highs. Mint Asset Management said in September 2025 that while it rated CEO David Bortolussi highly for improving disclosure and earnings consistency, it believed the share price already allowed for the success of future products from the recently acquired Yashili license, and that increasing manufacturing exposure would weigh on medium-term margins, leading it to see more attractive risk-reward elsewhere at the time. Cadence Capital took the opposite approach after the crisis hit, initiating a position in June 2026 and adding as the share price recovered, arguing that despite the temporary headwinds a2 Milk remained a good business capable of turning around, even though it had previously avoided the stock as a market darling trading on extreme valuations.

What managers are watching next

With Paradice Investment Management increasing its position after a further 22 per cent fall in June 2026, describing the weakness as near-term China channel dynamics rather than deterioration in the underlying market share trajectory, the key questions for managers are how quickly lost China Label customers return to the brand into FY27, and whether the full commissioning of the Pokeno facility, expected in the first half of FY27, finally delivers the reduced Synlait dependency that has been central to the investment case for over a year.