New Zealand dairy manufacturer Fonterra Shareholders’ Fund [ASX:FSF], a New Zealand unit trust that is established as a part of Fonterra’s Trading Among Farmers (TAF) scheme, rose nearly 3% in shares after announcing boosted earnings guidance and a strong first quarter.
Fonterra has said that it has lifted its earnings guidance to between NZ 50 cents and NZ 70 cents, up from its initial NZ 45 cents and NZ 60 cents per share.
Fonterra’s CEO, Miles Hurrell, said it was a positive start to the year despite the current global operating environment.
The FSF share price has bumped up almost 9% in the last month and 4% in the past week alone.
Year to date, the milk and dairy stock has fallen more than 14%:
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Fonterra’s guidance upgrade and promising quarter for dairy
Today, the dairy products producer brought positive news to shareholders in the form of a raised earnings guidance, upping the share price as the Farmgate Milk Price range lowered from the original price of $8.50 to $10.00 per kgMS to $8.50 to $9.50 per kgMS.
For the first quarter of FY23, Fonterra reported profit after tax of NZ$214 million, an increase on profit the same time last year of NZ$98 million.
The group reported favourable margins for its protein portfolio, specifically in casein and caseinate products, which has driven an increase in Total Group normalised EBIT to 94% with NZ$368 million.
Normalised profit after tax was also said to be up 84% to NZ$214 million, and normalised earnings per share were NZ 13 cents, compared to 7 cents this time last year.
The company’s Co-op Foodservice improved year-on-year, however, the company did report high milk prices had put pressure on margins.
Inventory volume has now returned to normal levels.
Miles Hurrell said the operating environment has been tough, but believes the company has managed to start strong for the year. He commented:
‘We continue to feel the impact of geopolitical and macroeconomic events, with higher costs at every point in our supply chain. It’s a similar story behind the farm gate with our farmer shareholders managing significantly higher input costs.
‘Globally, milk supply from key exporting regions is down over the last 12 months. Production in Europe and Australia continues to be down, with US milk supply showing a slight improvement in recent months. Here in New Zealand, our milk production is down 2.9% on the same point last season.
‘Global market volatility has prompted some softening of demand for whole milk powder, particularly in Greater China and this is reflected in our forecast Farmgate Milk Price range. We’ve seen increased participation from other regions which has offset in part the drop in demand from Greater China. While it’s still early in the financial year, we are happy with our sales contract rate.’
As the company looks ahead, Mr Hurrell believes dairy’s long-term outlook remains strong. He remains positive in the face of increasing global uncertainty and inflationary pressure.
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