Fonterra posts solid results

For six months ending January 31, Fonterra's profit after tax rose to $674 million - up $128m on the same period last year. Earnings before income and tax (EBIT) reached nearly $1b, up 14% from last year.

The co-operative has declared an interim dividend of 15c, 5c more than last year and remains on track for a full-year dividend guidance of 50-65c/share.

With less than two months left in the 2023-24 season, Fonterra has narrowed its forecast farmgate milk price range to $7.50 - $8.10 per kgMS, with the mid-point remaining at $7.80/kgMS.

Chief executive Miles Hurrell says earnings have been driven by higher margins and sales volumes in foodservice and consumer channels. He says this has helped to offset lower returns in the ingredients channel following historically high price relatives last year.

Sales volumes are up 22kilo metric tonne (kMT) or 1.3% to 1,721kMT and gross margins are up from 16.6% to 18.4%.

"At the same time, our balance sheet position remains resilient, with our strong underlying performance and low debt position helping to further lower our financing costs this year.

"Operating expenses for continuing operations are up $52 million on last year after removing the impact of FY23 impairents, due to increased labour costs, professional fees and investment in IT infrastructure."

Consumer and foodservice earnings are also up year-on-year, due to improved pricing and higher sales volumes. Meanwhile, ingredient channel earnings are down year-on-year off the back of historically high price relativities in FY23 and lower margins in Australia Ingredients during FY24.

Global Markets' reported profit after tax is up $230 million to $380 million, due to lower input costs in Southeast Asia, Sri Lanka and Fonterra Brands New Zealand. Fonterra Australia's performance has been impacted by the higher Australian milk price.

In February, Fonterra announced plans to merge its Australia and Fonterra Brands New Zealand businesses from 1 May.

Greater China reported profit after tax is up $94 million to $232 million, primarily due to strong performance in the foodservice channel.

Hurrell says the outlook for dairy trade is positive.

He says a gradual re-balance of China domestic milk production and import demand has improved but remains volatile with a soft economy. At the same time there's increasing demand from key import regions, particularly Southeast Asia, and Middle East and Africa.

On the supply side, EU and US production remains stifled due to high on-farm costs, while New Zealand and Australia production has lifted mainly due to better weather conditions.