Fonterra’s profits up by a modest 1% despite weather challenges

Last week, one of the world’s largest dairy co-ops, New Zealand based Fonterra, announced its third quarter financial results along with the narrowing of its milk price.

According to Fonterra, its revenue for the nine months up to April 30 was NZD$15 billion – up 1% on the same period last year – and its sales volume hit 16.6 billion liquid milk equivalent (LME) – up 4%.

However, normalised EBIT was down 9% to $522 million.

Other third-quarter financial performance results:
  • Gross margin: $2.2 billion (down 3%);
  • Normalised operating expenses: $1.8 billion (down $73 million);
  • Normalised EBIT: $522 million (down 9%);
  • Capital expenditure: $419 million (down 28%);
  • Revised forecast earnings per share range: 10-15 cents from 15-25 cents per share.

Fonterra chief executive, Miles Hurrell, commented on results, noting that the New Zealand ingredients business is performing “as expected”, but Australian ingredients continue to face challenges.

He said: “Due to these challenges and tightening relative price differences between reference products, we are reducing the forecast full year normalised EBIT for the whole ingredients business to $645; $725 million down from the $750-$850 million range we shared at our interim results.

“Consumer and food service improved its performance in the third quarter relative to the first half.

“Due to our performance in Latin America we have lowered our forecast normalised EBIT from $475-$525 million to $400-$430 million for this part of the co-op.”

Milk price

Fonterra also announced that it would be narrowing the range of its milk price for this year’s milking season to between $6.30/kg of milk solids (MS) to $6.40/kg of MS.

In addition, it gave an opening forecast farmgate milk price for the 2019/2020 milking season, with this likely to range between $6.25/kg of MS and $7.25/kg of MS.

Commenting on the forecasted milk price for the new season – which begins on June 1 – Fonterra’s chairman John Monaghan said: “This is a realistic opening forecast.

We are having to look out more than a year into the future which is difficult, but what the information available is continuing to show us is that demand remains strong across key trading partners and this is reflected in GDT prices.

“We are giving farmers a wide range for the opening forecast milk price. It will be narrowed as the season goes on.

“Weather plays a significant role in determining global milk volumes, and therefore price. We are forecasting our New Zealand collections to be 1.52 billion kg of MS for the new season, which is up slightly on the current season.”

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