Fonterra profit up 23% with higher margins and sales volumes

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Photo: RNZ / Rebekah Parsons-King

Dairy cooperative Fonterra has reported a 23 percent increase in first half profit, despite a 60 percent drop in the underlying net profit of its core operations.

Key numbers for the six months ended January compared with a year ago:

Net profit $674m vs $546m
Revenue $11.26b vs $12.33b
Cost of goods sold $9.05b vs $10.29b
Gross margin 18.4% vs 16.6%

Interim dividend 15 cents a share vs 10 cps

The co-operative narrowed its forecast farmgate milk price range to between $7.50 and $8.10 per kilo of milk solids (kgMS), but left the midpoint unchanged at $7.80 from its February upgrade.

Chief executive Miles Hurrell said the co-op’s performance had been driven by higher margins and sales volumes.

Fonterra chief executive Miles Hurrell
Photo: RNZ / Dan Cook

“While supply and demand dynamics remain finely balanced, with continuing global uncertainty, we are now well progressed through the season. “

Underlying profit from its ingredients, foodservice and consumer businesses fell overall by $154m to $102m, which was dragged down by a significant $212m drop in the ingredients business to $81m.

However, weaker core earnings were more than offset by a $230m gain in the global markets business to $380m, alongside a $94m gain in the Greater China business to $232m.

“At the same time, our balance sheet position remains resilient, with our strong underlying performance and low debt position helping to further lower our financing costs this year,” Hurrell said.

Fonterra has reported a return on capital over the past 12 months of 13.4 percent, up from 8.6 percent.

The co-op also returned $804m to farmer shareholders and unit holders following the divestment of its Soprole business. It also completed the sale of DPA Brazil JV with Nestlé to Lactalis. 

Hurrell said Fonterra was also working with farmers and customers to reduce on-farm emissions targets and remained focused on reducing costs across the business.

“Operating expenses for continuing operations are up $52 million on last year after removing the impact of FY23 impairments, due to increased labour costs, professional fees and investment in IT infrastructure,” he said.

“In February, we announced plans to merge our Australia and Fonterra Brands New Zealand businesses from 1 May. These two units share many similarities, and we expect the integration to create scale efficiencies.

“We’ve also deployed a new technology within our manufacturing base which has unlocked 8000 MT additional production capacity for our high-value UHT cream.”

Hurrell said global inflationary pressures were easing, while Fonterra was prepared to manage disruptions resulting from ongoing geopolitical volatility

“Our partnership with Kotahi and diversification across markets means we’re well prepared for disruption in global supply chains or changes in demand from key importing regions.”