Fonterra Lifts Milk Price But Lowers Dividends
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Mixed news from NZ dairy giant Fonterra yesterday with a high price forecast, but a warnings of slimmer dividends after a weaker than forecast third quarter trading performance.
The company said its opening forecast price for the 2018-19 season is $NZ7 per kilogram of milksolids while it also lifted its 2017-18 forecast farmgate price by 20c NZ cents to $NZ6.75 per kgMS. It also announced its third quarter financial results, which it described as "not the results it had planned".
Although higher prices lifted its revenue 7% to $NZ14.8 billion for the first nine months of 2017-18, its total milk volumes are down 5% to 16 billion liquid milk equivalents.
Fonterra said that saw gross profit margin fall to 16% from 18% for the nine months to March from a year earlier. The co-operative’s ASX-traded units, which give investors access to dividends, fell more than 7% to $A4.87 after yesterday’s announcement.
And while it will be July before it reveals its forecast earnings a share for the 2018-19 season, Fonterra cut its forecast normalised earnings a share guidance range for the 2017-18 season down to 25-30 NZ cents a share a share and its forecast dividend range for the full year to 15-20 NZ cents a share.
Chairman John Wilson said in yesterday’s statement the revised earnings forecast for 2017-18 was disappointing for shareholders and unitholders.
He however pointed to the total forecast cash payout for farmers increases to $NZ6.90-$NZ6.95 per kgMS being the third highest payout this decade.”
CEO Theo Spierings said the co-operative had expected a more successful second half of the year but this had not happened because of a rapid rise in input costs late in the season into its value-add business.
“With the increase in the price of milk fats we have also seen continued demand towards products with a lower fat composition, sustained competition in Greater China’s foodservice market and further constraints in some Asian markets limiting our ability to pass through costs,” he said.
The payment of damages to Danone of $NZ183 million, and the write down of its Beingmate investment in China by $NZ405 ming meant Fonterra’s gearing ratio was expected to be above its target 40-45 per cent range.
"While the strong milk price is good for our farmers, it does make the remainder of the year challenging for the business. We remain committed to maximising the total payout for our farmers and value for our unitholders by delivering the best possible earnings," Spierings said.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.