Fonterra cuts forecast per-share earnings, cites volatility in ingredients, narrower margins

Wednesday 22nd March 2017

Fonterra Cooperative Group cut its forecast for full-year earnings per share while maintaining its projected milk payout, citing volatility in returns from ingredients, tightening margins and potential increased milk supply in the autumn.

Per-share earnings are forecast at 45 cents to 55 cents while the farmgate milk price payout was affirmed at $6 per kilogram of milk solids, giving a forecast available for payout of $6.45 to $6.55 before retentions for a fully shared-up farmer. It had previously projected per-share earnings of 50-to-60 cents for a payout of $6.50 to $6.60 before retentions.

"The impact of more volatility in product stream returns in our Ingredients business, some tightening of margins in the coming months, and the potential for extra milk in the autumn could result in some pressure on our earnings in the second half," chairman John Wilson said in a statement. "The board considered these factors and, while continuing to have confidence in achieving a target dividend of 40 cents per share, has revised the forecast earnings per share range to 45-55 cents to reflect the additional volatility."

"We remain positive but cautious, and this is reflected in our interim dividend of 20 cents per share and our February decision to increase the advance cash rate paid to farmers earlier in the season,” he said.

The dairy exporter downgraded its forecast while releasing first-half results today which showed revenue climbed 9 percent to $9.2 billion. Normalised earnings before interest and tax fell 9 percent to $607 million in the six months ended Jan. 31. Net profit rose 2 percent to $418 million.

Wilson confirmed that a poor start to spring had slowed milk collection and prompted the company to forecast a 7 percent decline in total collection for the season. But today he said good rainfall in autumn "on-farm conditions are improving which means we are now expecting New Zealand collections to be down by 3 percent on last season."

He said Fonterra remains confident about its forecast farmgate milk price "but continue to advise our farmers to budget cautiously. The fundamentals of dairy are strong but there will be ongoing volatility in our global markets."

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