Fonterra posts sharp earnings rise amid dairy volatility

Dairy co-op Fonterra has posted a sharp rise in earnings despite a tumultuous year for farmer-suppliers.

Milking time in a New Zealand cowshed. Pic: AFP

New Zealand dairy co-operative Fonterra has reported a sharp rise in earnings despite its farmer-suppliers enduring one of the most tumultuous years in recent memory.

For the year to July 31, the world’s largest dairy group said net profit surged 65 per cent to $NZ834 million ($807.1m) despite revenues sliding 9 per cent to $NZ17.2 billion.

The group delivered earnings per share of NZ51c, in line with its guidance for 45c to 55c a share.

Fonterra said the results were symbolic of “a stronger business despite ongoing challenges in global dairy markets”.

“We continued with the significant and necessary changes we began in the business over three years ago to support our strategy and its priorities, and worked hard to return every possible cent of value back to our farmers,” chairman John Wilson said.

“Our business strategy is serving us well. We are moving more milk into higher-returning consumer and food service products while securing sustainable ingredients margins over the GlobalDairyTrade benchmarks, especially through speciality ingredients and service offerings.”

Fonterra, which is the second largest milk processor in Australia, said its local ingredients arm had swung back to profit, aided by a strategy reboot.

The news comes after it followed a shock price cut from Murray Goulburn with a similar one of its own in May.

“We have turned around our Australian business, as we said we would do, and we have in place all the building blocks to build on our strengths in cheese, whey and nutritionals and our market-leading brands in the butter and cheese categories,” chief executive Theo Spierings said.

“In addition, the realignment of the Australian milk price to a realistic level that reflects global dairy prices provides a more sustainable basis for the Australian ingredients business.”

Price reductions forced farmers to trim supply, with Fonterra noting a 4 per cent slide in its Australian milk collection for the year.

Fonterra offered guidance for earnings per share of NZ50-60c, pointing to a likely profit rise in the coming year.

“The higher forecast earnings per share range reflects the performance improvements the business will continue making,” chairman Mr Wilson said.

The company was cautious on the prospect of improvements for farmers, however, suggesting a recent global price rally had not yet put them on a sustainable footing.

“It is still early in the season, and we expect continuing volatility as reflected in price improvements in recent Global Dairy Trade auctions,” Mr Wilson said.

“Current global milk prices remain at unrealistically low levels, but as the signs in the market improve, we are very strongly positioned to build on a good result in the year to come.”

Its New Zealand farmers have received two recent price hikes, including one earlier this week.