Fonterra lifts profit on soaring demand for dairy products

The world’s biggest dairy exporter has lifted its earnings guidance thanks to high demand for cheese, protein products and whole milk powder.

Fonterra, the world’s biggest dairy exporter, has lifted its earnings guidance thanks to bumper demand for cheese, protein products and whole milk powder.

The New Zealand-based co-operative, which owns brands including Western Star, Perfect Italiano and Mainland, expects to deliver earnings per share of NZ45-60c (40-54c), up from its previous forecast of NZ30-45c.

It comes as the co-operative has been paying Australian farmers $9.40 per kilogram for milk solids – a record – and as it expects its milk collections to ease 1 per cent to 1.5 million kilograms for the 2022/23 season.

Chief executive Miles Hurrell said global demand for dairy products remained strong, sparking the profit upgrade and if conditions remained favourable he expected an additional bounce in earnings.

“The demand signals we saw at the end of FY22 have continued driving improved prices and higher margins across our portfolio of non-reference products, particularly in cheese and our protein products such as casein,” Mr Hurrell said.

“This sustained period of favourable pricing relativities between our protein and cheese portfolios, and whole milk powder is the main driver for the increase in the FY23 earnings guidance range being announced today.

“If these unprecedented conditions were to continue for a further extended period this could have an additional positive impact on forecast earnings.

Fonterra has capitalised on a strong global demand for dairy products.

“The benefit of being part of the Co-op is having a diversified organisation with an extensive portfolio of products which allow us to capture value in a broad range of market conditions, benefiting both farmer owners and unit holders.”

As well as milk collections declining across the Australian industry in recent years, Mr Hurrell said New Zealand was also down, citing floods in the top part of the South Island.

“We’ll continue to work with impacted farmers to ensure that if they need extra support that they are able to access it,” he said.

Fonterra’s earnings upgrade comes as Bega Group reported a 69 per cent slump in annual profit last month, citing hefty Covid-19 costs coupled with supply chain and flooding disruptions.

ASX-listed Bega’s net profit slid to $24.2m in the year to June 30 from $78m in the previous period. But the company cut its net debt by $60m to $265m.

Fonterra expects to report its full year earnings at the end of the month.

The co-operative has been mulling an IPO of its Australian arm – which has been valued at more than $1.2bn – as part of an ownership review, and the co-operative progresses with divesting its Chile and Brazil operations.