Bega Cheese now handles more than 12 per cent of Australian milk production, but it has sliced its full-year earnings forecast nearly 10 per cent.
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Normalised earnings before interest, tax depreciation and amortisation will be between $113 million and $117m - down from forecasts as high as $130m early in the year.
Although drought has continued to shrink Australia's total milk supply pool and drive farmers out of the industry, Bega boasted a record intake in 2018-19 - up 41pc on the previous financial year to 1.06 billion litres.
However, the increased receivals were achieved at a price, as the market contracted about 8pc due to drought-reduced production and farmers exited the industry.
Toughest market pressures
Competition pressure in the milk market from other processors and a shrinking supply pool down to 733m litres at June 30, meant the pressures had never been stronger, according to chief executive officer, Paul van Heerwaarden.
This pressure was particularly evident in the June quarter and when it came to setting the 2019-20 milk price from July 1.
The profit downgrade and tight dairy sector milk supply outlook for the sector have hammered Bega's share price to below $4 this week.
That's down from a high of $5.35 a share in May and around $7.90/share a year ago.
However, in the wake of its $251m purchase of the Koroit milk plant in south east Victoria from Saputo, last year, Bega has absorbed a significantly more milk supply via new three-year contracts which contributed largely to its 308m litre lift in receivals.
This gave the company 12.4pc of the diminished national milk market.
Mr van Heerwaarden said Bega Cheese's strategy was to be well positioned to ensure changing milk supply fundamentals could be reflected in greater production and logistics efficiency.
It intended to retain and grow its loyal supplier base while adding to its business earnings from non-dairy production streams such as its spreads and sauces lines bought two years ago.
Bega acquired Mondelez's Australian and New Zealand business, which included Vegemite and the market leading Kraft peanut butter business.
However, Mr van Heerwaarden said Bega management recognised future-proofing the company's supply and production base would come at a cost in 2019 and 2020.
"The full cost of these initiatives in the 2019 financial year is reflected in our guidance ahead of our financial year results announcement in late August.
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
