Fonterra raises earnings forecast, announces lower prices for next season

Image credit: Fonterra

New Zealand dairy giant Fonterra raised its fiscal 2023 earnings forecast today amid ongoing strong margins in protein and cheese portfolio and said it expects to pay a lower price for milk to its farmers next season. 

In an ASX announcement, Fonterra said it expects to pay NZ$7.25 (AUD 6.77) to NZ$8.75 (AUD 8.17) per kilogram of milk solids (kgMS) for the financial year 2023-24.

CEO Miles Hurrell said that while the forecast Farmgate Milk Price for this season has been impacted by reduced demand, the company remains on track for a strong full-year dividend.

Due to lower short-term demand, mainly from China, Fonterra has decreased its farmgate milk price range for 2022-23 to NZ$8.10 (AUD 7.56) to NZ$8.30 (AUD 7.75) per kgMS from an earlier range of NZ$8.00 AUD 7.47) to NZ$8.60 (AUD 8.03) per kgMS.

“We expect demand to gradually strengthen over the course of FY24 as China’s economy continues to recover from COVID-19,” Hurrell said in a statement.

He added, “However, the timing and extent of this remains uncertain, with China’s in-market whole milk powder stocks estimated to be above normal levels following increased domestic production. 

Fonterra, recognising the pressure farmers are under, said it had designed a new advance rate guideline to get cash to farmers earlier in the season.

“Our strong balance sheet allows us to make these changes and we will be using this new advance tate guideline going forward, starting with the season about to commence,” Hurrell said.

He said Fonterra’s strong financial performance over the quarter was due to a strong performance in its ingredients channel, with continued higher margins in the cheese and protein portfolio, particularly casein and caseinate.

Consequently, Fonterra expects normalised earnings for this fiscal year in the range of 65-80 New Zealand cents per share, higher than its earlier forecast of 55-75 cents.

The dairy firm is also bringing forward the payment date of its proposed capital return of around 50 NZ cents per share and unit to August from October.

“These favourable price relatives have continued longer than expected, and we’re also seeing improved performance coming through in our food service and consumer channels, in particular in global markets,” he said.