Dairy company, Fonterra Co-Operative Group, has reported its latest milk price change and earnings guidance.
Fonterra has raised the midpoint of the 2024/25 season forecast Farmgate Milk Price by 50 cents NZD to $10 NZD per kgMS.
“We’re committed to providing farmers the highest sustainable milk price, so I’m pleased to announce another lift in the forecast for the season,” said Fonterra CEO, Miles Hurrell.
“We’re seeing a recovery of demand in Greater China as domestic milk production rebalances and demand from Southeast Asia continues to be strong.
“Looking at supply, milk production out of the US and Europe continues to be impacted by local factors, while production out of most regions of New Zealand has increased.
“We’re continuing to monitor factors that may influence global supply and demand dynamics, including any potential impact from heightened geopolitical uncertainty.”
Fonterra’s forecast earnings for FY25 remain unchanged at 40-60 cents per share.
“Our forecast earnings range reflects an expectation our underlying operating profit will be stable as we offset the higher cost of milk in the second half of the financial year through improved sales volumes, product mix and pricing,” said Hurrell.
“It also reflects the change in Fonterra’s tax status, which is effective from this financial year and will reduce our reported earnings per share.”
Hurrell has also shared an update on what the start of next year will look like from a strategy perspective.
The business aims to focus on its Ingredients and Foodservice business units to grow returns for farmer shareholders and unit holders.
Investments to support this include approx. $75 million NZD to increase production capacity for high value protein ingredients at Fonterra’s Studholme manufacturing facility with site works now underway.
The business is also investing around $150 million NZD in a new UHT cream plant at Edendale which is expected to create 70 new roles in Southland.
“We also launched a new Foodservice product, Anchor Easy Bakery UHT Cream, targeting China’s mid-tier market,” said Hurrell.
“Alongside this, we’re investing in strengthening our supply chain network, with around $150 million allocated to build a new cool store with capacity to store 26,000 tonnes of cheese at our Whareroa site.
“These strategic investments underpin our future growth, and I’m pleased our balance sheet strength is enabling us to invest in our business.”
Fonterra has also progressed work to divest its global Consumer business, as well as integrated businesses Fonterra Oceania and Sri Lanka.
“Last month, we confirmed we are pursuing a divestment for these businesses,” said Hurrell.
“This work is now underway and we will share more information as it progresses.
“Our priority is maintaining momentum in our financial performance while the divestment process is underway.”
Fonterra’s Q1 profit after tax was $263 million NZD, equivalent to earnings per share of 16 cents.
“This is a strong start to the year, especially when taking into consideration the higher cost of milk and narrower price relativities when compared to this time last year,” said Hurrell.
“While these factors have impacted our gross margins, this has been partially offset by improved product mix, with a greater allocation of milk to higher value products in our Foodservice and Consumer channels.
“We ended FY24 with well managed inventory levels, meaning we started this year with lower levels than the year prior.
“As a result, we have lower sales volumes in our Ingredients channel when compared to this time last year. This channel was also impacted by the continued narrowing of price relativities in New Zealand. This has been partially offset by the realignment of the Australian milk price with global commodity prices.
“While Foodservice and Consumer gross margins have been impacted by the higher cost of milk relative to Q1 last year, it is pleasing to see margins have improved in our global markets since the end of last financial year.
“Operating expenses for the first quarter of FY25 were in line with expectations as we continue to invest in core IT and digital infrastructure and transformation initiatives.”
In other news, earlier this year, Meredith Dairy specified a custom refrigerated transport build from Scully RSV.
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