Bega Cheese now handles more than 12 per cent of Australian milk production but it has sliced its full-year earnings forecast nearly 10pc.
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 41 per cent on the previous financial year to 1.06 billion litres.
However, the increased receivals were achieved at a price, as the market contracted about 8 per cent due to drought-reduced production and farmers exited the industry.
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 last 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 from Saputo last year, Bega has absorbed significantly more milk supply via new three-year contracts which contributed largely to its 308m litre lift in receivals.
This gave the company 12.4 per cent of the diminished national milk market. It is actively pursuing more suppliers in the south-west.
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 intends to grow its supplier base while adding to earnings from non-dairy production streams such as its spreads and sauces lines.