Fonterra Lifts FY24 Earnings Guidance + Announces FY25 Farmgate Milk Price

Fonterra Lifts FY24 Earnings Guidance + Announces FY25 Farmgate Milk Price

Fonterra Co-operative Group Ltd has released a positive Q3 business update, revealing an impressive profit after tax from continuing operations of $1.01 billion, up by $20 million, equating to 61 cents per share. This growth is largely attributed to robust performance across all three of the co-op’s product channels.

CEO Miles Hurrell highlighted the significant contributions of the Foodservice and Consumer channels, which experienced a strong third quarter compared to the same period 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," Hurrell stated.

Additionally, Fonterra has 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. This forecast comes in light of recent increases in Global Dairy Trade (GDT) prices, which have returned to levels seen at the beginning of the calendar year.

“Our current season forecast Farmgate Milk Price midpoint remains unchanged at $7.80 per kgMS, and as we near the season's end, we have narrowed the range to $7.70-$7.90 per kgMS,” Hurrell explained. 

However, he cautioned that the milk supply and demand dynamics remain finely balanced and that China's import volumes have not yet returned to historic levels. 

“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.”

Fonterra’s year-to-date earnings from continuing operations equate to 61 cents per share, a slight increase from the prior year. 

“Fonterra’s sales volumes were up slightly on last year by 38kMT, or 1%, driven by higher sales volumes in our Foodservice and Consumer channels.”

Price relativities eased over the quarter and are expected to narrow further in Q4. Gross margins remain strong across all three channels, with food service and Consumer volumes up 4% and 7%, respectively, year on year, and consistent margins with Q2. The company's EBIT of $1,440 million reflects improved performance in Foodservice and Consumer, though the Ingredients segment saw a decline following record highs in FY23.

“Our increased earnings range assumes softer earnings in Q4 due to the seasonality of our milk collections, higher costs of inputs in the Foodservice and Consumer channels, and the impact of investments in modernising our IT systems,” Hurrell said. 

Despite these factors, Fonterra’s operating expenses are up due to inflation, upfront costs for efficiency improvements, and increased IT spending, which were historically capitalised on the balance sheet.

Hurrell also emphasised Fonterra’s strong balance sheet heading into the year’s end, with lower debt and reduced financing costs contributing to a robust financial position. The 12-month rolling Return on Capital sits at 11.9%, aligning with forecasts and expected to be within the 10-11% target range by year-end.

On the strategic front, Hurrell mentioned, “Following our recent strategic direction shift, we have received significant interest from parties looking to participate in the potential divestment of our Consumer and associated businesses. We commit to keeping our stakeholders informed as developments occur.”