Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
The co-op today increased the 2017-18 forecast farmgate milk price by 20 cents to $6.75/kgMS.
However, the co-op is revising its forecast normalised earnings per share guidance range down to 25-30c/share; the forecast dividend range for the full year is down to 15-20c/share.
Fonterra chairman John Wilson says the higher milk price is good news for farmers who are still recovering after the two years of lower milk prices in 2015 and 2016.
However, the higher milk price puts pressure on Fonterra’s earnings in a year which is already proving challenging due to the payment to Danone and the impairment of the Co-operative’s Beingmate investment.
“The business’ revised earnings forecast is disappointing for our shareholders and unitholders. However, the total forecast cash payout for farmers increases to $6.90-$6.95 per kgMS which is the third highest payout this decade.”
Chief Executive Theo Spierings says the earnings challenge that comes with the higher milk price is compounded by the timing and significance of this particular increase.
“There is always a natural lag in being able to pass through an increase in our input costs. But this increase has been both rapid and late in the year, making it difficult for these higher costs to flow through into our sales for this financial year.
“Against this backdrop, we can see our sales margins are not where they need to be at this point in the year to achieve our original earnings forecast”.
Wilson says the 20c lift in farmgate milk price reflects a global supply and demand picture that continues to be positive for farmers.
“Global dairy prices have risen since the start of the season. The price of Whole Milk Powder is particularly strong due to continued growth in demand from China and across Asia,” says Wilson.
“Our cooperative’s forecast milk collections here in New Zealand have increased to 1,500 million kgMS, up from the 1,480 million kgMS we reported at half year, thanks to improved farming conditions in March and April after a challenging spring and summer.
