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Fonterra reports strong sales, eyes higher earnings

(Source: Fonterra)

New Zealand dairy giant Fonterra has lifted its earnings guidance to 50 to 70 cents per share after reporting strong first-quarter profits up 84 per cent to $214 million. 

The company attributed its strong earnings growth to the performance of its protein portfolio, particularly in medical nutrition. It has forecast farmgate milk price of between $8.50 to $9.50 per kg of milk solids, with a midpoint of $9. 

Mike Hurrell, Fonterra CEO, said it was a positive start for the company given the current global situation.

“We continue to feel the impact of geopolitical and macroeconomic events, with higher costs at every point in our supply chain,” he said. “It’s a similar story behind the farm gate with our farmer shareholders managing significantly higher input costs.”

Hurrell explained that milk supply from key exporting regions – Europe, Australia, and the US – has been down over the past year and production in New Zealand is down 2.9 per cent against the same point of last season. 

In China, market volatility has prompted a “softening of demand” for whole milk powder. 

“We’ve seen increased participation from other regions, which has partially offset the drop in demand from Greater China,” he added. “While it’s still early in the financial year, we are happy with our sales contract rate.”

Hurrell said the ingredients segment of the company continues to see strong margins in its protein portfolio – particularly for casein and caseinate – used in medical nutrition. Underlying earnings were up 94 per cent to $368 million versus last year, while normalised profit after tax rose 84 per cent to $214 million.

 “The sustained strong margins in our protein portfolio give us the confidence to upgrade our earnings guidance, although the wider range reflects the volatility in the market, which we expect to continue in the short to medium term.

“If these conditions continue for extended periods, it could have an additional positive impact on forecast earnings.”

The dairy cooperative’s performance in the food service channel was said to have improved versus the same period last year. Still, the high milk costs continue to put significant pressure on margins in both consumer and food service channels. 

Hurrel said the company had made progress on shipping the additional inventory at the end of the company’s fiscal year, and the stock has returned to normal levels. 

“There’s no doubt we’re in a period of increased global uncertainty. Inflationary pressures are being felt both on-farm and across our business, but looking further out, the fundamentals for dairy remain positive,” he concluded. 

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