With a suggested farmgate price range from $7.25 to $8.75 per kgMS Fonterra is hinting at a mid-point of $8.00 per kgMS
Fonterra Co-operative Group Ltd has plenty to announce but of utmost interest to dairy farmers is an estimate of what they can expect to receive for their product in the 2024-25 season and that looks like landing at a midpoint of $8.00 per kgMS.
The company also released its Q3 business update that revealed a nice little profit after tax from continuing operations’* of $1,013 million, up $20 million or equivalent to 61c per share.
This result is driven by continued strong earnings across all three of the Co-op’s product channels.
CEO Miles Hurrell explained, “The Co-op’s Foodservice and Consumer channels in particular had a strong third quarter with a lift in earnings compared to the same time last year.
“As a result of this performance, we have lifted our forecast FY24 continuing operations’ earnings range to 60 to 70 cents per share, up from 50 to 65 cents per share” Miles Hurrell added.
Farmgate Milk Price
Global Dairy Trade (GDT) prices have lifted over the past couple of months, back to levels seen around the start of 2024.
“Our current season forecast Farmgate Milk Price midpoint remains unchanged at $7.80 per kgMS and as we are nearing the end of the season, we have narrowed the range to $7.70 to $7.90 per kgMS, Miles Hurrell continues.
“Looking to the 2024-25 season, milk supply and demand dynamics remain finely balanced and China import volumes have not yet recovered to historic levels.
“Given the early point in the season, the uncertainty in the outlook and ongoing risk of volatility in global markets, we are starting the season with a cautious approach. Our opening forecast range of $7.25 to $8.75 per kgMS suggests a midpoint of $8.00 per kgMS,” Miles Hurrell estimates.
Business Performance
Fonterra’s earnings from continuing operations’* year to date equates to 61 cents per share, up 1 cent on the same time last year.
“Fonterra’s sales volumes were up slightly on last year by 38kMT, or 1%, due to higher sales volumes in our Foodservice and Consumer channels, Miles Hurrell continues.
“We also saw price relativities ease over the quarter, and we anticipate them to narrow further in Q4 as they return to more historic levels.
“Gross margins remain strong across all three channels as our in-market teams continue to drive pricing and volume. Foodservice and Consumer volumes are up 4 and 7% respectively year on year, with margins consistent with Q2.
“Our EBIT of $1,440 million reflected improved performance in Foodservice and Consumer, with Ingredients down year on year following record highs in FY23.
“Our increased earnings range assumes softer earnings in Q4 due to the seasonality of our milk collections, the higher cost of inputs in the Foodservice and Consumer channels, and the impact of the investments in modernising our IT systems.
“Across Fonterra, operating expenses are up due to inflation, upfront costs of driving efficiency improvements and increased IT spend. Historically, some of this IT spend would have been treated as capex and capitalised on the balance sheet.
“We are heading into year end with a strong balance sheet, with Fonterra’s underlying performance and lower debt position helping to further reduce our financing costs.
“For the 12 months rolling Return on Capital we are sitting at 11.9%, in line with our forecast. This is expected to be in our 10-11% target range for end of year,” Miles Hurrell adds.
Strategy update
“Following our announcement earlier this month of a step-change in our strategic direction, we have received a high volume of interest from parties looking to be involved in the potential divestment of our Consumer and associated businesses, Miles Hurrell continues.
“It’s still early days in this process, and we commit to providing farmer shareholders, unit holders, our people and the market updated on new developments as they occur.
“We are also progressing work on our updated strategy and expect to share further detail over the coming months,” Miles Hurrell concludes.
*Continuing operations’ earnings excludes earnings from discontinued operations. In FY24 discontinued operations were DPA Brazil and in FY23 discontinued operations were DPA Brazil, Soprole and China Farms.
Fonterra main takeaways in brief
- Continuing operations’* earnings per share: 61 cents
- Reported earnings per share: 58 cents
- Continuing operations’ profit after tax: NZ $1,013 million up $20m, or 2%
- Reported profit after tax: NZ $973 million down 27% with the prior period including Soprole performance and net gain on divestments
- Continuing operations’ EBIT: NZ $1,440 million down 6%
- Return on Capital: 11.9% up from 11.7% year on year
- Lift in forecast FY24 continuing operations’ earnings range: from 50-65 cents per share to 60-70 cents per share
- Opening forecast Farmgate Milk Price for 2024/25 season: $7.25-$8.75 per kgMS with a mid-point of $8.00 per kgMS
Current season forecast Farmgate Milk Price: midpoint maintained at $7.80 per kgMS, range narrowed to $7.70-$7.90 per kgMS
