Fonterra shares drop to two year low

Fonterra Milk BottlesThe world’s largest dairy exporter Fonterra has cut its earnings guidance and lowered its forecast milk payout, as it looks to bolster its balance sheet amid tighter margins.

Shares tumbled 3.1 per cent to a nearly three-year low after the firm’s second profit downgrade in three months.

Fonterra had revised last season’s 2017/18 forecast Farmgate milk price from $6.75 per kgMS to $6.70 per kgMS as it struggles with tight local supply and a competitive global processing sector.

The company revealed that higher milk prices put pressure on its earnings and full-year normalised earnings will be at or slightly below its previously announced guidance range of 25 to 30 cents per share. Full-year dividend will be just the 10 cents already paid in April.

Chairman John Monaghan said the Board made these decisions in the best long-term interests of its farmer shareholders and unitholders.

“You never want to have to reduce the milk price at the season’s end, but it is the right thing to do and $6.70 remains a strong milk price,” he said.

“It is important for our Co-operative to have a strong balance sheet and, as we indicated in May, the higher milk price, which is good for our farmers, has put pressure on Fonterra’s earnings, and therefore our balance sheet in a year which was already challenging due to the payment to Danone and the impairment of the Co-operative’s Beingmate investment.

“Maintaining a strong balance sheet has helped us to support farmers during tough seasons through our Co-operative Support Loan and being able to bring forward the Advance Rate Schedule and get money to farmers earlier in the season,” he added.

The Co-operative’s full year results will be announced in September.

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