Fonterra Reports Mixed Financial Results Amid Changing Market Dynamics
Fonterra has announced its financial results for the first quarter of fiscal year 2025, reporting a modest 1.92% increase in revenue to NZ$5.2 billion (US$2.99 billion) but a significant 24% drop in profits after tax, which decreased to NZ$263 million (US$151.2 million) from NZ$346 million (US$198.9 million) in the previous year.
The dairy giant attributes this decline to several factors, including lower sales volumes due to a strong finish in FY2024 and increased milk costs impacting profit margins. The company is also investing in digital transformation initiatives.
According to CEO Miles Hurrell, the profit decline was influenced by lower sales volumes resulting from lower opening inventory for FY2025 and rising milk costs during FY2024, which affected gross margins. Fonterra also increased its IT and digital transformation spending by NZ$31 million (US$17.8 million).
Despite challenges, Hurrell noted some positive developments: “This is a strong start to the year when considering the higher cost of milk and narrower price relativities compared to last year. While these factors have impacted our gross margins, this has been partially offset by improved product mix with a greater allocation of milk to higher value products in our Foodservice and Consumer businesses.”
The results also highlighted shifting export dynamics. A 12.2% decrease in dairy and milk imports to China, previously a significant market, contrasts with a 10.3% increase from other Asian markets, showing strong demand, particularly in Southeast Asia. Fonterra also reported strong growth in consumer products, supported by successful brand promotions.
Challenges persist in some production regions. Favorable weather conditions have supported production in New Zealand and Australia, while production in the US has faced constraints and the EU has struggled with adverse weather and animal health issues.
Consumer Divestment Update
Despite strong performance in Southeast Asia, Fonterra is continuing its plans to divest its Consumer business to focus on Foodservice and Ingredients segments. Key brands, including Anchor, Anlene, Western Star, and Mainland, are part of this portfolio. The company has initiated this divestment process and will provide updates as it progresses. Maintaining financial momentum remains a priority during this transition.
