New Zealand’s Fonterra Co-Operative Group has reported a remarkable doubling of its annual profit, bolstered by robust margins in its cheese and protein product portfolio, along with elevated product pricing and strong demand for dairy ingredients and food service channels. The company’s strong performance has led to a surge in its shares.
Fonterra, the world’s largest dairy exporter, disclosed a normalized profit after tax, excluding gains from divestments, of NZ$1.33 billion ($788.3 million) for the fiscal year ending on July 31, marking a substantial increase from NZ$591 million the previous year.
As a result of this impressive financial performance, Fonterra’s shares saw a 3.9% rise by 0216 GMT, on track for their most outstanding day in the past six months, while the broader market experienced a 0.2% dip. Fonterra Shareholders’ Fund experienced an even more significant surge, rising by as much as 7.0% to reach its highest levels since May 2021.
Despite this success, Fonterra anticipates some challenges in the early stages of fiscal year 2024, having revised its farmgate milk price forecast twice in August due to lower demand and international dairy price weakness in China, the world’s primary dairy imports market.
Neil Beaumont, Fonterra’s chief financial officer, acknowledged the short-term challenges in China, despite the benefits derived from the reopening of economies after the COVID-19 pandemic. Additionally, the company expects inflationary pressures and the farmgate milk price outlook to affect its production levels.
Nevertheless, Fonterra remains optimistic, with expectations of earning between 45 and 60 NZ cents per share from ongoing operations in fiscal 2024, compared to normalized earnings of 80 NZ cents per share in fiscal 2023. Beaumont noted that recent price increases at global dairy trade auctions, the resurgence of Chinese buyers, and the upgrade of the China-New Zealand Free Trade Agreement all indicate the potential for increased demand for New Zealand milk powders starting early next year.
To reward its shareholders, the Auckland-based company declared a final dividend of 40 NZ cents per share, a significant increase from the 15 NZ cents per share declared the previous year.
