Fonterra's annual result this week is expected to show that the dairy giant is back in the black, but will it pay a final dividend?
The co-op last year posted a net loss of $605 million, driven mostly by writedowns of its overseas businesses, dwarfing the previous year's shortfall of $196m, and sparking a major change in direction.
Fonterra did not pay a dividend in its previous financial year but in its latest earnings update, it said it would reassess a payout at the end of the latest year to July 31.
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Fonterra's earnings guidance has pointed towards earnings of 15c to 25c per share, or $240m-$405m in net profit after tax.
Market expectations are for this Friday's annual result to show a net profit of around $386m.
Forsyth Barr analyst Chelsea Leadbetter expects the company to produce a final dividend of 9 cents a share, while market expectations are for 10.6 cps.
Leadbetter said it appeared Fonterra was on a path to recovery after several challenging years.
"In short, the co-op has been performing well (but off a weak comparative period) and it is moving in the right direction, although earnings per share is still well below its previous peak," she said.
"Strategic changes have delivered results in terms of both improved earnings and
lowering its debt levels," she said.
Fonterra has faced some challenges from Covid-19, particularly demand from the food service sector.
However, it has also benefited from consumer stockpiling and more cooking at home.
Dairy is a category where demand has been fairly resilient, she said.
As is always the case with Fonterra, there would be many moving parts in its result.
"But in terms of the strategic reset, the reduction in gearing, and the commitment that they made over the last 12 months - expect to see some execution on those," she said.
Chief executive Miles Hurrell took over from previous CEO Theo Spierings in 2018 and swiftly started instituting big changes, most of them centring on asset sales.
"We are hearing some good things in terms of positive feedback about some of the change that they have made behind the scenes over the last 12 to 18 months, under Miles," Leadbetter said.
"From that perspective it's very encouraging but, like everyone else, they are facing some uncertainty around Covid-19, in the food service channel in particular - but in terms of the things that they can control they seem to have made some progress."
Fonterra has struggled to achieve consistent earnings performance since its inception in 2001.
Westpac senior agri-economist Nathan Penny said it needed to string together a series of solid earnings performances to win back investor confidence.
"They have developed a disappointing habit of starting the year with optimistic forecasts and then gradually winding them back.
"We would like to see a result in the black after the horrible losses that they have had," he said.
"Developing consistency is what Fonterra needs to do," he said.
"So one decent result is not going to be enough."
"They need to deliver a run of results before the market will be convinced that they are getting the business model right and running in an effective and transparent way, because they really have underperformed for most of their history."
In this month's Global Dairy update, Fonterra said its New Zealand milk production for the 12 months to July was 0.5 per cent lower than last year.
Exports for the 12 months to June were down by 2 per cent, or 70,887 tonnes, on the previous comparable period - primarily driven by butter, anhydrous milk fat, cheese and whole milk powder.
Mild weather across most regions led to soil conditions conducive to very good pasture cover.
As a result, production was tracking higher than for the same time last season.
The co-op's milk price forecast for the current 2020/21 season is in a range of $5.90 - $6.90 per kg of milksolids.
Friday's result will confirm the milk price paid for the last 2019/20 season, which was last pitched in a range of $7.10-$7.20 per kg.