Investors had been long expecting Synlait Milk to raise its profit forecast the year ending July but Tuesday's upgrade was a disappointment.
Synlait now expects to post an annual net profit between $30 - $35 million, at least 53 percent higher than its prospectus forecast of $19.7 million. It reported $11.5 million for the 12 months to July 2013.
According to Bloomberg, analysts had been forecasting about a $40 million annual profit.
The milk processor attributes the profit upgrade, which it foreshadowed in December, to high international milk prices, earnings growth in its value-added products as well as good prices for the commodities it produces.
Managing director John Penno says his board wanted to have more certainty before it released actual numbers and it's a dynamic industry and things can change fairly quickly as they did in the first half of the year.
"It's our best forecast at this stage, but it's acknowledging that things could change as the year unfolds, commodity prices are starting to look like they're going to hang on a little better than we'd predicted earlier at very, very high levels."
Mr Penno says a lot will depend on how the infant formula industry adapts as the regulatory changes in China continue to roll out.
Synlait shares fell as low as $3.80 on Tuesday before closing at $3.82, down 13 cents.
Synlait has also upped its expected payout to its farmer suppliers from $8 a kilogram of milk solids to between $8.30 and $8.40, close to Fonterra's forecast payout of $8.30.
Milford Asset Management analyst Brooke Bone says Synlait's board has to grapple with a degree of uncertainty with some major factors that are outside the company's control such as what Fonterra is doing and the botulism scare.
He says the fact Synlait has now paid out the full milk price means that there are some major factors affecting Synlait which are outside the control of the board directors, so it's fair that they are acting conservatively.
Mr Bone says Synlait needs to pay either the same amount to its farmers as Fonterra is paying, or close to that amount, to show to its farmers that it's doing a good job for them.