Fonterra forecast same despite earnings fall

AUCKLAND: Fonterra is sticking to its 25 cents to 35 centspershare earnings forecast for the current year despite experiencing ‘‘multiple events’’ worldwide and a decline in earnings over the first nine months.

The dairy coop said its normalised net profit fell 20% to $472 million due to disruption in its key markets of China and Sri Lanka, and to the war in Ukraine.

Fonterra pitched its farmgate milk price range for the 202223 season at $8.25 to $9.75 per kilogram of milk solids — with a midpoint of $9 per kg.

For the 202122 season — which finishes this month — Fonterra has maintained its 202122 forecast milk price of $9.10$9.50 per kg.

At a midpoint of $9.30 per kg, this would be the highest forecast milk price in the coop’s history and would result in it injecting almost $14 billion into the New Zealand economy through milk price payments.

Worsening economic turmoil in Sri Lanka had driven the Sri Lankan rupee sharply lower, resulting in an $81 million ‘‘adverse revaluation’’ in its business payables to New Zealand, chief financial officer Marc Rivers said in a results conference call.

‘‘We are managing multiple events in multiple markets in what is an increasingly volatile environment.

‘‘But because of our depth and breadth of scale, and ability to shift products between markets, we have been able to continue to deliver solid earnings around a strong milk price, despite all the challenges,’’ Mr Rivers said.

Chief executive Miles Hurrell said the Ukraine conflict was hitting markets on many fronts, not just the supply chain but also Fonterra’s farmers, who now faced higher onfarm costs, such as for fertiliser.

Fonterra has long had a 25 cents to 25 centspershare earnings forecast for the current year on its books and yesterday’s result did not alter it.

‘‘While favourable price relativities in the fourth quarter are positive for earnings, we expect continued pressure on our margins due to the higher milk price coupled with the normal seasonal profile of our business,’’ Mr Hurrell said.

Fonterra’s sales volumes were down in the nine months as a result of lower milk collections and the timing of sales due to shortterm effects on demand, including the lockdowns in China, the economic crisis in Sri Lanka and the Ukraine war.

Total group normalised ebit was $825 million, down $134 million, reflecting lower sales volumes, continued pressure on margins from the significantly higher milk price, ongoing Covid19 disruptions and the rapid decline of the Sri Lankan rupee.

Mr Hurrell said the opening milk price forecast reflected continued demand for dairy, coupled with constrained global supply.

‘‘The longterm outlook for dairy remains positive, despite recent geopolitical and Covid19related events impacting global demand in the short term,’’ he said. —