New Zealand dairy giant Fonterra has revised its earnings forecast guidance downwards as a result of rising milk prices.

The cooperative’s chairman, John Wilson, said a higher milk price is good news for farmers still recovering after two years of lower milk prices in 2015 and 2016 but pointed to the pressure it puts on Fonterra’s earnings in a year already proving challenging due to a payment to Danone and the impairment of its Beingmate joint venture in China.

“As a result, we are revising our forecast normalised earnings per share guidance range down to 25-30 cents per share and our forecast dividend range for the full year down to 15-20 cents per share,” he said.

“The business’ revised earnings forecast is disappointing for our shareholders and unitholders. However, the total forecast cash payout for farmers increases to NZD6.90-6.95 (US$4.75 to $4.79) per kgMS which is the third highest payout this decade.”

Chief executive Theo Spierings said the earnings challenge that comes with the higher milk price is compounded by the timing and significance of this particular increase.

“There is always a natural lag in being able to pass through an increase in our input costs. But this increase has been both rapid and late in the year, making it difficult for these higher costs to flow through into our sales for this financial year,” he said.

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By GlobalData

“Against this backdrop, we can see our sales margins are not where they need to be at this point in the year to achieve our original earnings forecast.”

In March, Fonterra announced that Spierings would be standing down as a first-half loss was disclosed.