Shares in a2 Milk slumped in morning trade after the infant formula company downgraded its earnings forecasts because of supply chain issues partly relating to the conflict in the Middle East.

The company had previously said that it expected to lift its net profit for the June year but said it now expects the result to be similar to last year’s net profit, which came in at $202.9 million.

By late morning, a2 Milk’s shares had fallen by $1.50 (13.4%) to $9.71.

A2 Milk now sees revenue growth around the low to mid double-digit percentage level, compared with its previous guidance of mid double-digit percentage growth.

It expects earnings before interest, tax, depreciation and amortisation (ebitda) margin to be 14.0% to 14.5% (previously 15.5% to 16.0%).

The company’s interest income will be lower because of lower market rates and net transaction cash outflows, it said.

A2 Milk said it continued to experience strong demand for the a2 brand across all product categories and regions in the third quarter, with positive year-to-date offtake trends similar to or better than that experienced in the first half.

Demand for a2 imported infant formula products had been strong, partially supported by international competitor product recalls.

But it said the availability and cost of additional air freight required to accelerate product shipments to China was being indirectly impacted by the Middle East conflict, with variability in capacity allocations for sea freight.

A2 Milk’s inventory levels have been low throughout 2026 because of past Synlait manufacturing challenges and other operational issues impacting production.

“While production at Synlait has recently returned to target levels, there remains a significant backlog of unfilled purchase orders from Synlait with less capacity to catch up following the sale of its North Island assets,” a2 Milk said.

Separately, Synlait Milk said a2 Milk’s update reinforced the range of risks being experienced in the infant formula industry, which have also impacted Synlait.

“These include, but are not limited to, product release and clearance times (which affects phasing of product sales and cashflow), ongoing management of the supply chain and the movement of product globally, regulatory changes, and a challenging geopolitical and trading environment,” Synlait said.

A2 Milk said the supply chain issues were primarily timing-related and one-off in nature.

“Notwithstanding these short term challenges, the company intends to continue to reinvest in the business in the fourth quarter to support brand health, growth and long term value creation,” it said.

Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.