Spilt Milk for Bellamy’s Shareholders

You know things must be bad when a ‘transformational rebrand’ is the key message of your annual report. For Bellamy’s Australia Ltd [ASX:BAL] shareholders, that was the tale of the tape this morning.

The organic baby formulae maker’s shares were down almost 11% shortly after the open. A huge selloff in response to the weaker result.

Fortunately, there was some reprieve after the initial shock. The stock has since recovered slightly and is now down 3%.

The small bounce won’t wipe away concerns though, and right now they are critical.

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Pressure on all fronts

To put it bluntly, Bellamy’s has served up a grim result.

Profit has nearly halved from $42.8 million to $21.7 million. A result that has come on the back of lower sales and higher costs.

In effect, Bellamy’s is being squeezed from both sides.

However, the slimmest of slim silver linings is their improving gross margin. They managed to raise it from 39.2% to a slightly better 43.5%.

So, naturally, CEO Andrew Cohen was quick to talk less about the present and more about the future:

While FY19 has been a challenging year, and the impact of regulation has been difficult, the changes made during the past year have set a new foundation for the long-term success of our brand.

Our transformational rebrand demonstrated strong momentum through the Q4 period. The business enters FY20 with a clean balance sheet, positive consumer momentum and a healthy trade dynamic.

Make of that what you will, but Cohen is going to have to put up or shut up. And he better be snappy about it.

Trade bites

At the heart of Bellamy’s woes is a changing China. It is no longer the easy sales channel it used to be. Now companies have to put some effort into reaching customers.

The good news for Bellamy’s is that they’re now doing that. As they note:

The business has doubled investment in both marketing and China capability to better activate the brand and engage consumers.

It’s a good start, but it has yet to translate to positive sales. A clear sign that the company will have to work harder to take back the market share they’ve lost.

Hopefully this ‘transformational rebrand’ will actually pan out as well as management foresee. Otherwise, this may just be a taste of more pain to come for shareholders.

That doesn’t mean they can’t turn this trade war to their advantage, though. As we explain in our handy report, there are plenty of opportunities for shrewd businesses. For more details check out the report in full, right here.


Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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