Fonterra, the world’s largest dairy exporter, today (21 March) lowered its forecast for its annual earnings per share, with the New Zealand-based business predicting some “volatility” in the second half of its financial year.

The company reported higher first-half revenue and net earnings but estimates its annual earnings per share would reach 45 to 55 New Zealand cents, down from its earlier forecast of 50 to 60 cents.

“The impact of more volatility in product stream returns in our ingredients business, some tightening of margins in the coming months, and the potential for extra milk in the autumn could result in some pressure on our earnings in the second half,” Fonterra chairman John Wilson said.
“The board considered these factors and, while continuing to have confidence in achieving a target dividend of 40 cents per share, has revised the forecast earnings per share range to 45-55 cents to reflect the additional volatility.”

Fonterra’s first-half net earnings increased 2% to NZD418m (US$294.3m), helped by a fall in finance costs. The group’s EBIT stood at NZD644m, down 14.3% on the year. Stripping out factors including the disposals of Fonterra’s Australian yogurt and desserts business, as well as a manufacturing plant, the company’s “normalised” EBIT was NZD607m, a 9% fall on a year earlier. Half-year revenue was 5% higher at NZD9.2bn.

Chief executive Theo Spierings said the first half result shows that Fonterra’s strategy of moving more volume into higher value products is working.
“Our ingredients business maintained good margins. We made the most of our manufacturing capacity, and the flexibility it provides to match production to demand and secure the best returns for our farmers’ milk,” Spierings said. “We increased volumes and value across our consumer and foodservice business. Greater China continued to increase its earnings through the strong performance of the foodservice business, and key markets like Chile grew on the back of successful brand relaunches. It was also good to see the benefits of continued improved performance in our Australian business.”