Tuesday, 01 June 2021 10:55

High milk price lifts Fonterra's input costs

Written by  Sudesh Kissun
Fonterra chief executive Miles Hurrell. Fonterra chief executive Miles Hurrell.

Fonterra is sticking to normalised earnings guidance of 25-35 cents per share for this year.

Last week the co-operative reported third quarter normalised earnings of 34c/share but is staying quiet about any plans for a dividend payment at the end of this financial year. At its half-year update, Fonterra announced an interim dividend of 5c/share.

Fonterra chief executive Miles Hurrell expects earnings in the fourth quarter to come under further pressure and full year earnings are expected to be more towards the mid-point of the range.

A high milk price means higher costs associated with producing value-added products for the co-ops.

Hurrell says there are some clouds on the horizon when it comes to Fonterra's earnings performance.

"While overall we've seen stronger gross margins so far this year, they've narrowed in the third quarter as the increasing raw milk prices have flowed through to our input costs, and the pricing lags on sales contracts with customers have delayed our ability to pass through the increase in our input costs," he says.

Fonterra is forecasting increased pressure on margins in the fourth quarter.

Hurrell says this is compounded by the normal seasonal profile of its business - ongoing fixed costs but lower volumes of milk being processed and sold.

"All of this means the fourth quarter will be challenging from an earnings perspective and we expect the margin pressure to continue into the first quarter of the 2022 financial year."

For nine months ending April 30, Fonterra delivered a normalised net profit after tax (NPAT) of $587 million, up 61% year-on-year.

Fonterra's China business has made another solid contribution to the co-operative's third quarter results.

For the nine months ending April 30, the Greater China business delivered normalised earnings before income tax of $457 million, up 30% compared to last year.

Foodservice, once again, was the big driver behind this result, contributing $93 million of the growth.

Hurrell says Greater China continues to be an important performer for the business.

The co-op's ongoing financial discipline is also a big part of its third quarter performance story, with operating expenses down 5% year-to-date.

However, Hurrell says it is planning some additional expenditure in the final quarter to support brands and product initiatives for next year.

"Our debt reduction over the last couple of years and lower interest rates have reduced our interest bill by $69 million for the nine months," he says.

More like this

All eyes on NZ milk supply

All eyes are on milk production in New Zealand and its impact on global dairy prices in the coming months.

"Our" business?

OPINION: One particular bone the Hound has been gnawing on for years now is how the chattering classes want it both ways when it comes to the success of NZ's dairy industry.

Farmers' call

OPINION: Fonterra's $4.22 billion consumer business sale to Lactalis is ruffling a few feathers outside the dairy industry.

Wasted energy

OPINION: Finance Minister Nicola Willis could have saved her staff and MBIE time and effort over ‘buttergate’ recently by not playing politics with butter prices in the first place.

Featured

Australia develops first local mRNA FMD vaccine

Foot and Mouth Disease outbreaks could have a detrimental impact on any country's rural sector, as seen in the United Kingdom's 2000 outbreak that saw the compulsory slaughter of over six million animals.

NZ household food waste falls again

Kiwis are wasting less of their food than they were two years ago, and this has been enough to push New Zealand’s total household food waste bill lower, the 2025 Rabobank KiwiHarvest Food Waste survey has found.

Editorial: No joking matter

OPINION: Sir Lockwood Smith has clearly and succinctly defined what academic freedom is all about, the boundaries around it and the responsibility that goes with this privilege.

National

Machinery & Products

Tech might take time

Agritech Unleashed – a one-day event held recently at Mystery Creek, near Hamilton – focused on technology as an ‘enabler’…

John Deere acquires GUSS Automation

John Deere has announced the full acquisition of GUSS Automation, LLC, a globally recognised leader in supervised high-value crop autonomy,…

Fencing excellence celebrated

The Fencing Contractors Association of New Zealand (FCANZ) celebrated the best of the best at the 2025 Fencing Industry Awards,…

» Latest Print Issues Online

The Hound

A step too far

OPINION: For years, the ironically named Dr Mike Joy has used his position at Victoria University to wage an activist-style…

Save us from SAFE

OPINION: A mate of yours truly has had an absolute gutsful of the activist group SAFE.

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter