Fonterra's Cautious Start for New Season Amid Balanced Milk Supply and Demand
Source: The DairyNews
Fonterra has announced a cautious opening forecast for the new season, projecting a milk price range of $7.25-$8.75/kgMS, with a midpoint of $8/kgMS. This forecast is approximately 40 cents lower than most bank predictions. CEO Miles Hurrell cited the finely balanced milk supply and demand dynamics, along with China's import volumes not yet recovering to historic levels, as reasons for the conservative approach.
"Given the early stage of the season and the uncertainties in the global market outlook, we are starting cautiously," Hurrell explained.
For the recently concluded season, Fonterra narrowed its forecast range to $7.70-$7.90/kgMS, with a midpoint of $7.80/kgMS. The cooperative's strong performance in food service and consumer channels enabled it to increase its earnings range to 60-70 cents per share, up from 50-65 cents per share.
Fonterra's third quarter (Q3) results showed a profit after tax from continuing operations exceeding $1 billion, a $20 million increase from the previous year. This result was driven by robust earnings across all product channels. Specifically, the foodservice and consumer channels saw significant improvements, with sales volumes up 1% year-over-year, primarily due to higher volumes in these sectors.
Hurrell noted that gross margins remained strong across all channels, with foodservice and consumer volumes increasing by 4% and 7%, respectively, year-over-year. Gross earnings of $1.44 billion reflected improved performance in these areas, although ingredient earnings were down from record highs in FY23.
The cooperative's increased earnings range factors in anticipated softer Q4 earnings due to seasonal milk collection patterns, higher input costs in foodservice and consumer channels, and investments in IT system modernization.
"Operating expenses are up across Fonterra due to inflation, upfront costs for efficiency improvements, and increased IT spending. Historically, some IT costs would have been capitalized as capex," Hurrell added.
Fonterra heads into year-end with a strong balance sheet, bolstered by improved underlying performance and a lower debt position, further reducing financing costs.
For the recently concluded season, Fonterra narrowed its forecast range to $7.70-$7.90/kgMS, with a midpoint of $7.80/kgMS. The cooperative's strong performance in food service and consumer channels enabled it to increase its earnings range to 60-70 cents per share, up from 50-65 cents per share.
Fonterra's third quarter (Q3) results showed a profit after tax from continuing operations exceeding $1 billion, a $20 million increase from the previous year. This result was driven by robust earnings across all product channels. Specifically, the foodservice and consumer channels saw significant improvements, with sales volumes up 1% year-over-year, primarily due to higher volumes in these sectors.
Hurrell noted that gross margins remained strong across all channels, with foodservice and consumer volumes increasing by 4% and 7%, respectively, year-over-year. Gross earnings of $1.44 billion reflected improved performance in these areas, although ingredient earnings were down from record highs in FY23.
The cooperative's increased earnings range factors in anticipated softer Q4 earnings due to seasonal milk collection patterns, higher input costs in foodservice and consumer channels, and investments in IT system modernization.
"Operating expenses are up across Fonterra due to inflation, upfront costs for efficiency improvements, and increased IT spending. Historically, some IT costs would have been capitalized as capex," Hurrell added.
Fonterra heads into year-end with a strong balance sheet, bolstered by improved underlying performance and a lower debt position, further reducing financing costs.
