Fonterra Co-operative Group Ltd has provided its Q3 business update, announcing profit after tax from continuing operations of $1,013 million, up $20 million or equivalent to 61c per share. This result is driven by continued strong earnings across all three of the Co-op's product channels.
CEO Miles Hurrell said the Co-op's Foodservice and Consumer channels in particular had a strong third quarter with a lift in earnings compared to the same time last year.
“As a result of this performance, we have lifted our forecast FY24 continuing operations’ earnings range to 60-70 cents per share, up from 50-65 cents per share,” said Hurrell.
Fonterra also announced an opening 2024/25 season forecast Farmgate Milk Price of $7.25-8.75 per kgMS with a midpoint of $8.00 per kgMS.
Global Dairy Trade (GDT) prices have lifted over the past couple of months, back to levels seen around the start of the calendar year.
Hurrell said the current season forecast for Farmgate Milk Price midpoint has remained unchanged at $7.80 per kgMS.
"As we are nearing the end of the season, we have narrowed the range to $7.70-$7.90 per kgMS. Looking to the 2024/25 season, milk supply and demand dynamics remain finely balanced and China import volumes have not yet recovered to historic levels," said Hurrell.
“Given the early point in the season, the uncertainty in the outlook and ongoing risk of volatility in global markets, we are starting the season with a cautious approach. Our opening forecast range is $7.25-$8.75 per kgMS with a midpoint of $8.00 per kgMS.”
Fonterra’s earnings from continuing operations year to date equates to 61 cents per share, up one cent on the prior year.
“Fonterra’s sales volumes were up slightly on last year by 38kMT, or one percent, due to higher sales volumes in our Foodservice and Consumer channels. We also saw price relativities ease over the quarter, and we anticipate them to narrow further in Q4 as they return to more historic levels" added Hurrell.
“Gross margins remain strong across all three channels as our in-market teams continue to drive pricing and volume. Foodservice and Consumer volumes are up four percent and seven percent respectively year on year, with margins consistent with Q2."
Fonterra's EBIT of $1,440 million reflected improved performance in Foodservice and Consumer, with Ingredients down year on year following record highs in FY23.
“Our increased earnings range assumes softer earnings in Q4 due to the seasonality of our milk collections, the higher cost of inputs in the Foodservice and Consumer channels, and the impact of the investments in modernising our IT systems," said Hurrell.
“Across Fonterra, operating expenses are up due to inflation, upfront costs of driving efficiency improvements and increased IT spend. Historically, some of this IT spend would have been treated as capex and capitalised on the balance sheet. We are heading into year end with a strong balance sheet, with Fonterra’s underlying performance and lower debt position helping to further reduce our financing costs. For the 12 months rolling Return on Capital we are sitting at 11.9 percent, in line with our forecast. This is expected to be in our 10-11 percent target range for end of year,” added Hurrell.
Following the announcement earlier this month of a step-change in its strategic direction, Fonterra has received a high volume of interest from parties interested in the potential divestment of its consumer and associated businesses.
“It’s still early days in this process, and we commit to providing farmer shareholders, unit holders, our people and the market updated on new developments as they occur. We are also progressing work on our updated strategy and expect to share further detail over the coming months.”
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