Fonterra earnings tipped at lower end of forecast

Photo / Christine Cornege

Fonterra is expected to reveal operating earnings at the lower end of an already published forecast range for the year to July 31 when it reports its result tomorrow.

The co-operative's guidance is for earnings before interest and tax (ebit) of $500 million-$600 million, down from $937 million in 2013/14.

"Expectations are for ebit to be at the lower end of this range, due mainly to the adjustment to the value of Fonterra's year-end inventory," the co-operative said in its latest update.

The reduced forecast reflected a sharp fall in global dairy prices as reflected by the GlobalDairyTrade price index, which has dropped 45 per cent since February.

At the farmgate, farmer-shareholders are bracing for an expected decline in the milk price from Fonterra's forecast of $6 per kg for 2014/15, which with an estimated dividend of 20c-25c per share would take the payout to $6.20-$6.25 per kg.

Private forecasters have suggested wholesale pricing pointed to a milk price around the mid- to low-$5 mark.

Tomorrow's results announcement is expected to contain an update on China's Beingmate Baby & Child, and its planned joint venture with Fonterra.

Last month, Fonterra said the partnership would create a fully integrated global supply chain from the farmgate to China's consumers. Fonterra is expected to soon start the process to issue a partial tender offer to buy a stake of up to 20 per cent in Beingmate.

At the same time, Fonterra announced plans for a $555 million debt-funded expansion of its New Zealand production facilities.

The strength of the New Zealand dollar is bound to be mentioned in the result, although it has become less of a problem since balance date. In July the currency was at near record highs of just over US88c but was trading at US81.35c yesterday evening.