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Why the A2 Milk share price was down 6% today

Tristan Harrison
A2 Milk shares

At one stage today the A2 Milk Company Ltd (ASX: A2M) share price was down 6% after the CEO stepped down.

By the end of the day it was only down by around 4%, but that’s still a painful fall for investors.

A2 Milk’s CEO Jayne Hrdlicka had only been in the role since mid-2018. Ex-CEO Geoffrey Babidge will be the interim CEO, commencing immediately. 

The Board said that it fully endorses the strategy which Ms Hrdlicka and the senior leadership team have developed. In the ASX release A2 Milk Chairman David Hearn said:

“The Board…remains confident that the strategic course of the business which was recently communicated at the Annual Meeting will continue to deliver strong rewards to all shareholders in the future.” But, it seems that something just didn’t click. 

Ms Hrdlicka said that the next phase of A2 Milk’s growth will be too difficult for her to manage with all of the travelling along with her other commitments whilst also managing the health and wellness priorities of herself and her family.

Speaking to the Australian Financial Review, Chairman Hearn inferred that A2 Milk’s initial FY20 guidance of a lower earnings before interest, tax, depreciation and amortisation (EBITDA) margin was too focused on growth and not enough on maintaining attractive profit margins.

Since announcing that the company was adjusting the spending in FY20 to be weighted to the second half, the share price has recovered but it showed when the market thought of A2’s plans.

The other issue was that Ms Hrdlicka was living in Melbourne when the Aussie HQ was in Sydney and the global HQ was in Auckland – there are advantages to having the CEO physically close to the action.

Foolish takeaway

I’m sure that A2 Milk will continue to keep growing at a fast rate. The US and China are very important markets for A2 Milk so it will be interesting to see what the new CEO can do. It’s trading at 27x FY21’s estimated earnings, this price drop could actually be an opportunity.

The post Why the A2 Milk share price was down 6% today appeared first on Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019