Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
But Hoggard says it’s still early days, and the proof of Fonterra’s turnaround will be if they get a dividend again at the end of this financial year.
Hoggard says farmer shareholders will be happy to see the co-op move in the right direction.
“I mean, they weren’t happy when our co-op was moving in the wrong direction,” he told Dairy News.
Fonterra announced a positive first quarter result, achieving a gross margin of $740 million, up from $646m last year.
Operating expenditure is down by $104m, and debt is reduced by $595m compared to same period last year.
Chief executive Miles Hurrell says the cooperative has made good progress moving to its new strategy and has had a strong first quarter.
“When we announced our strategy in September, we said there were three things most important to us: caring for people and making a positive impact on society (Healthy People), working together to achieve a healthy environment for farming and society (Healthy Environment) and delivering sustainable business results (Healthy Business). We are making good progress across all three areas.
“I’m pleased to see this level of improvement. Our people are doing a great job at putting our strategy into action. There’s more to do but the wheels are definitely in motion.”
While the forecast milk price to farmers is the fourth highest in Fonterra’s history, its putting pressure on profit margins in the value added business.
“The biggest pressure on our earnings is going to be the rising milk price. Stronger than forecast performance from our Foodservice business has helped offset the higher milk price to date and we will need to be focused on making improvements in other areas too.”
Fonterra’s earnings are also being affected by turmoil in some overseas markets Chile and Hong Kong.
“There will also be some markets that have difficult trading conditions over the course of the year. These currently include Chile and Hong Kong where we are starting to see the ongoing civil unrest impact our sales.”
Fonterra’s normalised earnings guidance for the 2020 financial year remains at 15-25 cents per share. This reflects the underlying performance of the business, Hurrell says.
