NZ’s dairy firm Fonterra raises annual profit forecast, shares rise

Reuters - New Zealand's Fonterra (FCG.NZ), opens new tab raised the lower end of its annual earnings forecast on Thursday, after reporting higher third-quarter profit, helped by strength in the dairy giant's ingredients channel and consumer operations business.

The company's shares rose 0.9% to NZ$4.6 and are headed for their best intraday session since May 20.

The company anticipates stable near-term market demand and expects an initial farmgate price of NZ$10 per kilogram of milk solids (kgMS) for the next season, within the wider forecast range of NZ$8 to NZ$11 per kgMS.

"Looking at the season ahead, we expect this demand to continue for now, but we acknowledge the ongoing geopolitical uncertainty and the potential for a wider series of outcomes across the season," said CEO Miles Hurrell.

Fonterra's chief also backed its recent plans to explore divesting options for its global consumer unit, Fonterra Oceania and Fonterra Sri Lanka, including a sale or an initial public offering.

"Divestment or an IPO could refine the earnings profile and unlock capital, positioning Fonterra as a focused B2B dairy leader," said Jeremy Sullivan, an investment advisor at Hamilton Hindin Greene.

"This shift could boost earnings stability and target a 10-12% return on capital, surpassing the five-year average of ~9%."

The company is now eyeing the year-end earnings per share to be between 65 New Zealand cents and 75 cents, higher than 55 to 75 cents forecast earlier.

It logged a third-quarter normalised profit after tax of NZ$1.16 billion ($692.06 million), up 11% from a year earlier.

The quarterly performance was driven by strength in the ingredients business and rising volumes at foodservice and consumer operations, Hurrell added.

However, Sullivan said that earnings guidance blends confidence with caution, while the ingredients channel's margins hinge on global dairy price trends.