Fonterra profit up 183% despite dairy industry woes

The dairy cooperative reported Thursday a net profit of 506 million New Zealand dollars ($321 million), compared with NZ$179 million a year earlier, with the portion attributable to cooperative equity holders almost tripling to NZ$466 million.

Fonterra chairman John Wilson said the price rise for New Zealand farmers reflected a slight recovery in global dairy commodities.

Westland have followed Fonterra, in restructuring staff numbers to align costs with the reduced milk price, as the whole sector adjusts to the downturn and dairy farm values falling by 37% from the highs of previous year.

As a result of that review, the company will cut 750 jobs, up from the 523 previously announced, resulting in savings of $103 million a year.

The extent of the forecast payout was a surprise and would be well received by farmers, said Chris Lewis of Federated Farmers.

Wilson said the lift in profitability in the second half of the 2015 financial year was expected to carry through into the current financial year.

That would bring the total payout to farmers to between $NZ5 and $NZ5.10/kgMS, including forecast earnings per share of NZ40 cents to NZ50 cents.

That’s why the interest-free loan Fonterra is offering its farmer shareholders doesn’t have to be repaid until the farmgate milk price or advance rate rises above the $6/kgMS mark.

“Looking ahead, this uncertainty means that world markets are likely to be hard in the medium-term”, Spierings said.

Fonterra confirmed a payout for last season of NZ$4.40 per kilogram of milk solids and a dividend of 25 cents per share.

Profit margins for US milk producers have narrowed but remain mostly positive as lower feed prices have offset much of the impact from declining milk prices. Turnover on the New Zealand stock market had been “pretty appalling” for the past couple of weeks in the face of increased volatility in global markets, said David Price, a broker at Forsyth Barr.

“It’s also important to note that this has been somewhat of a transition year with regard to our Co-op’s most recent capital investments and as such these have yet to provide any significant returns”.

“We’ll still keep farming very tightly to get ourselves out of this loss”.

While the 2015-2016 pay-out figure is just a forecast, farmers now know exactly what they will earn for the current season.

Fonterra’s management has delivered a good result under extremely tough circumstances.

Dairy NZ estimated farmers would require an extra $100,000 over the season.