Fonterra went into the black in its first half but the co-op faces an uphill battle to meet its earnings forecasts for the year while it reduces debt and streamlines its operations.
The dairy giant reported net profit of $80 million in six months to January, up from a loss of $348m a year earlier, but said its net earnings before interest and tax dropped by 29 per cent to $323m.
Newly-appointed chief executive Miles Hurrell said the result was "not be where it should be".
Earnings were down across all divisions and the company's already high debt lifted by 4 per cent to $7.4 billion.
At that level, Fonterra's gearing came to 52.5 per cent compared with its target range of 40 to 45 per cent.
The company said it was confident asset sales worth $800m could be achieved to return its debt level back within the desired band.
A steady performance from New Zealand ingredients had been offset by challenges in Australia Ingredients, which saw Ingredients EBIT decline by 17 per cent to $461m.
Fonterra's Australian ingredients business continued to feel the impact of drought and a decline of Australian milk collections and aggressive price competition for milk had resulted in the under-use of manufacturing assets and tightening margins.
The Consumer and Foodservice division's EBIT came to $134 million, down $59m from the previous corresponding period.
Fonterra's Latin American business had been held back by disruptive political and economic conditions as well as high input costs.
And in Fonterra's China Foodservice business, demand slowed due to higher prices and in-market inventory levels growing for butter at the end of 2018.
Mark Lister, head of private wealth research at Craigs Investment Partners, said the market was expecting a weak result and that's what it got.
"They will need a big second half to get to where they need to be," he said.
Fonterra last month dropped its earnings forecast for the year to July 31 to 15-30 cents a share, down from an earlier forecast of 25 to 35c.
The co-op said the latest range had built in an expectation of a slightly softer second half for its ingredients business, but a "meaningful" increase in consumer and foodservice earnings.
Its icecream business, Tip Top, is up for sale and Fonterra's 18.8 per cent stake in China's Beingmate is under review.
The Tip Top had attracted a small number of potential buyers.
"While we have not made any final decisions, we are talking with a small number of potential buyers (for Tip Top)," Hurrell said.
"Some are interested in buying Tip Top in full, others in part," he said.
In addition, Fonterra's 50 per cent share of DFE Pharma - a joint venture established in 2006 between Fonterra and the Dutch dairy giant, FrieslandCampina is up for sale.
DFE Pharma is one of the largest suppliers of pharmaceutical excipients, which are used as a carrier agent in medicines such as tablets and powder inhalers.
Hurrell said Fonterra had received strong interest from a small number of potential buyers for all or part of Tip Top.
Fonterra has sold its interest in its Venezuelan consumer joint venture Corporacion Inlaca to Mirona, an international food business, for $16m.
The decision to sell Inlaca is the result of ongoing instability in Venezuela, which had led to "challenging" operating conditions as that country suffers from political upheaval and hyperinflation.
As the company seeks to reduce its debt mountain, it faces an additional headache in the form of high milk prices.
At the overnight Global DairyTrade auction, wholemilk powder prices rallied by 4 per cent to US$3317 a tonne - their highest point since May 2017.
The futures market is pointing to a farmgate milk price of around $7.00 a kg in the 2019/20 season - which would one of highest achieved since Fonterra was formed in 2001 if it comes to pass.
Elevated milk prices, while good for farmers, put pressure on Fonterra's input costs and squeeze margins.
Fonterra chairman John Monaghan said the co-op was undergoing fundamental change.
"We are taking a hard look at our end-to-end business, where we can win in the world and the products where we have a real competitive advantage," he said.
Lister said Fonterra would have its work cut out to reduce debt through asset sales.
"It's not great to be forced to sell businesses just to get debt down to where you want it to be," he said.
"It's a big ship to turn around, so even if some of those initiatives are being taken, it could be some time before they get things on track."
Fonterra's NZX-trade units, which give outside investors access to Fonterra's dividend flow, closed at $4.27, having lost a quarter of their value over the last 12 months.