Bega guides to lower FY23 earnings on back of rising costs

Bega Cheese’s (ASX: BGA) share price was down -6% open after the dairy company’s warning that rising milk prices over June and July have negatively impacted previous FY23 guidance.

Management now expects normalised earnings (EBITDA) to come in between $160m and $190m, versus previous guidance provided back in April of between $175m and $190m in FY22.

What happened

While Bega along with other dairy companies were able to pass through many of the higher input costs to retail and wholesale markets, farm gate prices in Victoria for FY23 have soared to around 30% higher than FY22 prices.

In summary, management now expects the company’s FY23 performance to be impacted by the delay in timing of some of these higher product prices and the finalisation of secured milk volumes during July.

Further price increases

While the company believes it’s well positioned to recover the higher costs associated with the increase in farm gate milk prices, brokers aren’t convinced.

The ongoing escalation of farmgate milk prices, against a backdrop of softening global ingredient prices suggests to Bell Potter that further price increases will be required in the branded portfolio in FY23.

While Bell Potter maintains a Hold rating, the broker’s target price has been lowered to $3.80 from $4.20.

Bega Cheese share price.