Fonterra Reports Strong Earnings and Announces Milk Price Forecast for FY25
Fonterra Co-operative Group Ltd has announced its Q3 business update, revealing a profit after tax from continuing operations of NZ $1,013 million, marking a 2% increase. This equates to earnings of 61 cents per share, attributed to robust performance across the company’s product channels. CEO Miles Hurrell highlighted significant growth in the Foodservice and Consumer channels, which boosted earnings compared to the previous year.
Hurrell stated, “As a result of this performance, we have lifted our forecast FY24 continuing operations’ earnings range to 60-70 cents per share, up from 50-65 cents per share.”
Additionally, Fonterra has set the opening forecast Farmgate Milk Price for the 2024/25 season at $7.25-$8.75 per kgMS, with a midpoint of $8.00 per kgMS. The current season’s Farmgate Milk Price midpoint remains stable at $7.80 per kgMS, with the range narrowed to $7.70-$7.90 per kgMS due to recent Global Dairy Trade (GDT) price movements.
Hurrell noted the current cautious approach, citing, “Given the early point in the season, the uncertainty in the outlook and ongoing risk of volatility in global markets, we are starting the season with a cautious approach. Our opening forecast range is $7.25-$8.75 per kgMS with a midpoint of $8.00 per kgMS.”
The company reported earnings of 61 cents per share from continuing operations year to date, a 1-cent increase from the prior year. This growth is driven by higher sales volumes in the Foodservice and Consumer channels, which rose by 38kMT or 1%.
Hurrell commented on the company’s performance, “Fonterra’s sales volumes were up slightly on last year by 38kMT, or 1%, due to higher sales volumes in our Foodservice and Consumer channels. Gross margins remain strong across all three channels as our in-market teams continue to drive pricing and volume. Foodservice and Consumer volumes are up 4% and 7% respectively year on year, with margins consistent with Q2.”
EBIT for continuing operations was reported at NZ $1,440 million, a 6% decrease from the previous year. Despite this, Hurrell noted improved performance in the Foodservice and Consumer sectors, offsetting a decline in Ingredients following record highs in FY23.
“Our increased earnings range assumes softer earnings in Q4 due to the seasonality of our milk collections, the higher cost of inputs in the Foodservice and Consumer channels, and the impact of the investments in modernising our IT systems. Across Fonterra, operating expenses are up due to inflation, upfront costs of driving efficiency improvements and increased IT spend,” Hurrell explained.
The company is also maintaining a strong balance sheet, with reduced debt contributing to lower financing costs. The 12-month rolling Return on Capital stands at 11.9%, aligning with forecasts and expected to fall within the 10-11% target range by year-end.
Reflecting on strategic initiatives, Hurrell said, “Following our announcement earlier this month of a step-change in our strategic direction, we have received a high volume of interest from parties looking to be involved in the potential divestment of our Consumer and associated businesses.”