Fonterra’s strong third quarter

Fonterra Co-operative Group provided its third quarter business update, announcing strong profit after tax of NZ$1,158 million, up $119 million on this time last year. As a result, the co-op narrowed its year-end earnings range to 65-75 cents per share, at the upper end of the guidance provided in March of 55-75 cents per share.
CEO Miles Hurrell says Fonterra is committed to delivering strong shareholder returns through both earnings and the farmgate milk price. “Our forecast farmgate milk price for the current season is driven by strong demand for our milk price reference products and our range is unchanged at $9.70-$10.30 with a midpoint of $10 per kgMS. We’re also pleased to tighten our year-end forecast earnings within the existing range, given the strength of our third quarter performance,” says Hurrell.

The co-op has seen a normalised profit after tax of $1,158 million, equivalent to 70 cents per share, with operating profit of $1,740 million, up $267 million on last year. “This result reflects the scale and ongoing strength of our ingredients channel, and volume growth in our foodservice and consumer channels with each channel increasing its third quarter performance compared to the same period last year,” he notes.

“Our full year forecast earnings range of 65-75 cents per share assumes flat earnings in Q4 of FY25 due to the seasonality of our milk collections, the higher input prices for our Consumer and Foodservice businesses, ongoing investment in our ERP system and an increase in costs associated with shaping the Co-op post divestment to execute our strategy.

Hurrell says a priority for Fonterra this year has been the implementation of its strategy, which deepens the co-op’s focus on its ingredients and foodservice businesses. “Last year, we announced a step-change in our strategic direction, including a decision to divest our global consumer and associated businesses. We have been thoroughly testing the terms and value of both a trade sale and initial public offering (IPO) as divestment options. This work is on track as planned and we will seek farmer shareholder approval to divest through a vote in due course. Given the confidence we have in our strategy, we have strong conviction that a divestment is the right choice for the co-op and its owners.

“Our financial results show we have an impressive business as a global B2B dairy player, powered by our home-base of New Zealand milk and operations,” he adds. “If we divest our Consumer business, we will still be a co-op with global reach and scale, and a diverse product mix sold to customers in more than 100 countries.

“By focusing on our core strengths and the sales channels that deliver the highest returns, we have the confidence to target an average return on capital of 10-12%, which is above our five-year average. This is alongside paying farmers the highest sustainable FMP, which we are always committed to,” says Hurrell.