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Friday 22 June 2018

Fonterra boosts farmgate milk price but says higher costs trim annual profit

A cow in front of Fonterra Kauri plant
A cow in front of Fonterra Kauri plant

Aaron Saldanha

New Zealand’s Fonterra Co-operative Group cut its full-year profit and dividend forecasts, sending its shares down 7pc as the company takes longer to pass on higher milk costs to its customers.

Global dairy prices pushed by rising Chinese demand rose to a nine-month high at a fortnightly auction held last week. The Global Dairy Trade (GDT) Price Index fetched an average selling price of $3,637 per tonne, up 13.9pc in the year to date.

“There is always a natural lag in being able to pass through an increase in our input costs,” Fonterra Chief Executive Theo Spierings said in a statement.

“But this increase has been both rapid and late in the year, making it difficult for these higher costs to flow through into our sales for this financial year,” he added.

Fonterra trimmed its guidance for full-year forecast normalised earnings to NZ$0.25-0.30 per share from NZ$0.35-0.45 per share. It also cut its full-year forecast dividend range to NZ$0.15-0.20 per share, from NZ$0.25-0.35 per share announced in March.

Fonterra shares, which fell to their lowest level in nearly two years on Wednesday, have lost 10pc in the year to Tuesday against a 2.6 percent gain in the broader S&P/NZX 50 index.

“Demand for dairy products is relatively high, but there are only certain products that Fonterra can add value to and make profits,” said Grant Williamson, investment adviser at Hamilton Hindin Greene.

“Whereas, with demand for basic dairy products the main beneficiary is the farmer,” he said.

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Fonterra said the opening farmgate milk price forecast for the 2018-19 season was NZ$7 per kilogram of milk solids (kgMS), 3.7pc higher than the current season’s revised estimate.

The company expected demand to remain strong, especially from China and for butter and anhydrous milk fat.

Fonterra raised its farmgate milk price forecast for the current season by 3.1 percent to NZ$6.75 ($4.68) kgMS.

The company’s milk collections in New Zealand during the 2018-19 season were estimated at 1.53 billion kgMS.


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Reuters

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