Source: Radio New Zealand
The market consensus for the six months ended January was for revenue in the order of $11 billion. 123rf / Supplied images
Fonterra’s first half result is expected to deliver to expectations, but with a murky outlook as the war in Iran threatens global supply chains, along with rising energy and other costs.
Generate KiwiSaver investment specialist Greg Smith said strong demand for dairy products as well as the low value of the New Zealand dollar would help Fonterra through the ongoing volatility, though there could be some disruption to its cheese exports to places such as the United Arab Emirates, as an example.
“So there are some impacts there, and product that potentially will need to be re-routed,” Smith said.
The market consensus for the six months ended January was for revenue in the order of $11 billion, with an underlying profit of $976 million and a normalised net profit of $445m.
The first half dividend was expected to be about 21 cents per share, in addition to a special Mainland dividend in a range of 14-to-18 cps, following the completion of the sale of Fonterra’s Mainland Group of global consumer and associated business to Lactalis for $4.22b.
Where is the growth coming from?
The company was forecasting growth in its ingredients and food services business to fill any gap left by the sale of the consumer business by the year ending July 2028.
“Unlike other company results, I think the focus this time in particular (will be) less on the numbers… and I think that’s principally reflecting the strategic reset that’s underway,” Forsyth Barr senior equities analyst Matt Montgomerie said.
Two key focuses will be on where Fonterra’s debt levels, following the divestment and how the ingredients and food services businesses were planning to fill the earnings gap left by the sale of the consumer businesses.
Forecasts
- FY26 forecast earnings guidance from continuing operations at between 45 and 65 cents per share.
- Current season forecast Farmgate Milk Price midpoint $9.50 per kgMS – range of $9.20-$9.80 per kgMS.
- Target to close Mainland underlying earnings gap of $300m – FY28 to match FY25.
“Delivery and execution and messaging around that target is the key for the next few years,” Montgomerie said.
Who will lead Fonterra?
Fonterra chief executive Miles Hurrell resigned this month following a 25-year career with Fonterra, including eight years as chief executive after the resignation of the late Theo Spierings in 2019, who failed to connect with farmer-shareholders and left the company in a poor financial position, with high debt levels to deal with.
Montgomerie said farmers will want to see someone who operates in a similar mode to Hurrell, who was able to relate to farmers on a day-to-day business and deliver on the turnaround strategy.
“The farmers are looking for consistency and continuity. Obviously, change can bring about new perspectives, but I would be surprised if there are any notable changes in strategic direction with the new CEO,” he said.
“It feels like there’s a strong desire to provide sort of an opportunity for someone internally to continue the strategic direction of the business. But I think the key thing is that reliability and trust from a farmer point of view, but then also Fonterra’s customers all around the world.”
Smith said the next chief executive will have “big gum boots to fill”.
“I’m sure there’ll be a swathe of high quality internal candidates put forward but also no doubt there’ll be a global benchmark process,” he said.
“I don’t really think there’ll be a significant change in strategy, given all the effort that has gone into refocusing and simplifying the business.”
The bigger picture?
Smith said the sale of the Mainland business will give the New Zealand economy a much needed boost.
“The Mainland sale is going to inject potentially around $3 billion, if not more into the Kiwi economy,” Smith said.
“So that’s a positive story for the second half of the year, economically.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
