Breville reported FY26 EBIT of $207 million up 1%. The company showed improving sales growth and better profit margins in 2H26, which did benefit from a $4.4 million net tariff refund. Sales momentum should remain above 10% constant FX growth in FY27e as retail shop-in-shops, new product launches and additional countries of distribution boosts sales. We expect gross margins and EBIT margins to expand in FY27e as better sourcing and lower tariffs help margins.

A2 Milk’s FY26 EBITDA had already been pre-announced. The debate centres on the earnings rebound in late FY27e and FY28e as A2 Milk deals with impacts from its supply shortage. The company’s FY27e guidance of mid single-digit sales growth and 15% EBITDA margins is somewhat conservative. However, it will take time to win over new customers. We expect 1H27e sales to fall 1% and 2H27e sales to rise 13%. We see an EBITDA margin of 15.4% for FY27e. The company will hold more inventory given the shift to its own production and margins should rise to over 18% in FY28e.

A2 Milk’s recent update suggests that its product shortages in China have been resolved. The financial pain was a -$53 million hit to FY26e sales and -$33 million hit to EBITDA. Given A2 Milk’s disclosure, it appears the loss on China label sales was over $100 million, with half of the customers lost to competitors and half switching to A2 Milk English label. Re-capturing lost customers will take time and keeps us cautious on any sales recovery. On margins we are more optimistic about FY27e as Pokeno losses unwind and the supply chain has more inventory buffers.

Breville has navigated a turbulent six years given a COVID-19 boom in demand and bust along with the introduction of China tariffs by the US. We expect Breville to sustain close to 10% constant FX sales and EBIT growth over the next two years. The demand backdrop in the US remains strong and globally the coffee machine market has significant upside in household penetration. Even though competition in coffee machines is heating up, Breville’s premium position affords it some protection. We also see medium-term sales support from additional markets like China and the middle east.

A2 Milk’s downgrade to guidance will hurt FY26e EBITDA but the impact in FY27e should moderate. We lower our FY26e EBITDA by 12% and FY27e by 6%. For FY28e, our downgrade is only 3%. The downgrade is mostly a function of lower shipments of infant formula given reduced supply from its manufacturer and longer approvals for customs clearance. Higher air freight costs account for close to one-third of the downgrade.

A2 Milk reported a strong improvement in underlying earnings. On a continuing business basis, revenue rose 19% and EBITDA was up 18%. The Pokeno acquisition was a loss-making contribution in the half pointing to even stronger performance in 1H26. The sales result was helped by acquisitions and currency, which will fade into 2H26e. While China infant formula growth was good, more meaningful market share gains would be more encouraging. The company lifted its guidance metrics for FY26e and should meet its $2 billion revenue target this year. We would prefer a little more margin for safety in the valuation given its reliance on China infant formula growth.

We have reviewed the US price and volume backdrop for Breville. Price rises put through in August 2025 look like they have stuck, albeit December was very promotional. Price rises of 3% will be partly offset by lower volume growth in our view. Breville’s 1H26e EBIT could rise by 4% with the tariff impacts only affecting three months of the period. We expect flat EBIT in FY26e.

Breville reported 10.2% EBIT growth for FY25, with slightly weaker growth in 2H25. The key debate on this company is the magnitude and timing of the impact of US tariffs on its earnings. We expect the combination of tariffs with some offsetting cost savings to result in a slight lift in FY26e EBIT to $206 million. The tariff headwinds will continue into FY27e because of its inventory cycle and temper EBIT growth in that year as well. We forecast FY27e EBIT of $220 million. Beyond FY27e, the company should return to 7%-10% EBIT growth.

We initiate coverage of a2 Milk with an Underweight rating and $8.00 target price. a2 Milk has shown a strong recovery in sales and profit margins following COVID-19 disruptions. The prospect for growth remains good over the next three years but it will increasingly be focused on China label infant formula, despite a soft industry backdrop. a2 Milk’s acquisition of the Pokeno facility and divestment of Mataura Valley Milk (MVM) will boost EBITDA margins with a 220bp uptick from the divestment of MVM and a further 130bp through the internalisation of production at Pokeno. We see EBITDA margins reaching 20% by FY30e. a2 Milk has good growth prospects, but the growth is narrowly focused on China infant formula sales, which has some risk.

With 45% of sales in the US, Breville is in the cross-hairs of the disruption from US tariffs. In this report, we assess Breville’s relative competitive position in the US for imported products, estimate the impact tariffs could have on earnings and discuss alternatives the company may pursue. Breville is in a decent position given most imports in small appliances come from China (and other Asia). Breville could see an earnings impact of -19%, or -$38 million on our estimates from the tariffs, with lower volumes, some margin compression partially offset by lower cost of goods, marketing and staff incentives.