Fonterra raises earnings forecast

Auckland-based dairy giant Fonterra has raised its annual earnings forecast.

According to NZX whole milk powder futures, whole milk powder prices, key to Fonterra’s payout, are due to decline by about 3% at next week’s Global Dairy Trade Auction.

NZ’s Federated Farmers dairy spokesman Andrew Hoggard welcomed the good, but unexpected news.

Farmers had been giving Fonterra a hard time over the past year about improving performance and dividend, so it was good to see the better results.

Fonterra’s boost in operational performance for the first quarter of 2016 and business transformation benefits being delivered earlier than expected means it has also been able to increase the rate at which farmers are paid support of 50 cents per kgMS under an interest-free loan scheme instituted to help farmers through the current season.

Chief executive Theo Spierings said the group wanted to expand its co-operative’s global network with first-quarter initiatives expected to generate a one-time cash benefit of $110 million.

FONTERRA Co-operative Group is increasing its total forecast cash payout for its New Zealand suppliers to NZ$4.95-$5.00 per kilogram of milk solids.

The new forecast was given in a business update Fonterra issued today.

“Performance is well ahead of a year ago and we are hitting our targets on gross margins and operating and capital expenses”, Wilson said in a statement. Since August, it has reduced the amount of product it expects to sell on the GlobalDairyTrade platform by 146,000 metric tonnes, and it is selling more products through bilateral customer agreements for a premium price to the GDT.

The downgrade reflected S&P’s view that Fonterra’s risk profile had weakened in the past two years, as the company’s peak capital expenditure and a sizeable debt funded acquisition – the purchase of an 18.8% stake in China’s Beingmate – coincided with a high level of volatility in the global dairy market.