Chief executive Miles Hurrell said: “We’ve delivered strong shareholder returns through FY25, including a 22-cent interim dividend, and as we get closer to the end of the year, we are focused on maintaining this momentum.”
Fonterra’s forecast milk price for the current season was driven by strong demand for milk price reference products.
“We’re also pleased to tighten our year-end forecast earnings within the existing range, given the strength of our third quarter performance,” Hurrell said.
“Looking at the season ahead, we expect this demand to continue for now, but we acknowledge the ongoing geopolitical uncertainty and the potential for a wider series of outcomes across the season,” he said.
Fonterra’s focus on optimising its product mix drove third quarter earnings higher.
“This result reflects the scale and ongoing strength of our ingredients channel, and volume growth in our foodservice and consumer channels with each channel increasing its third quarter performance compared to the same period last year,” the co-op said.
Fonterra’s rolling 12-months return on capital was 11%, which is above its previous target for 2025 and within its long-term target range of 10-12%.
The co-op is in the throes of selling its consumer division, Mainland, which is estimated to be worth around $3 billion.
Hurrell says a priority for Fonterra this year has been the implementation of strategy to focus on its high-performing ingredients and foodservice businesses.
He said the co-op’s decision to sell its consumer and associated businesses was grounded in creating value for farmer shareholders.
“We have been thoroughly testing the terms and value of both a trade sale and initial public offering (IPO) as divestment options.
“This work is on track as planned and we will seek farmer shareholder approval to divest through a vote in due course,“ he said.
“Given the confidence we have in our strategy, we have strong conviction that a divestment is the right choice for the Co-op and its owners.”
“If we divest our consumer business, we will still be a Co-op with global reach and scale, and a diverse product mix sold to customers in more than 100 countries.“
Fonterra continued to target a “significant” capital return to shareholders and unit holders following the divestment.
The co-op is 12 months into what it said would be a 12 to 18-month sale process.
“I think we’re pretty comfortable with our original time frame,” chief financial officer Andrew Murray told the Herald.
Murray said the co-op’s milk price forecasts showed that demand and supply were “relatively tight”.
“If you look at the supply situation globally, there’s there’s not much growth in supply coming out of the US or Europe particularly, but their economies are remaining relatively robust at the moment.
“Demand-supply is pretty tight, which is perhaps putting a good floor under the milk price.”
However, he said the low end of the season-ahead range - $8 per kg - reflected uncertainty on the macro-economic front.
Murray said there had been a shift in consumer sentiment in favour of dairy milk over some alternative milk products.
“Certainly we do see that, so I think people are looking for less processed foods and are actually getting back to natural products.”
Murray said there was also a trend towards people having more protein in their diets.
Commenting on the season ahead, Murray cautioned that heightened geopolitical risk could add some downside to the milk price forecast.
“We have given a range that is, I guess, asymmetrical this year, so we do see there’s probably a little bit more downside risk than there is upside opportunity, and that just comes down to geopolitical uncertainty.”
A high milk price has in the past tended to weigh on Fonterra’s profitability because milk is the co-op’s biggest input cost.
But Murray said Fonterra had been building on its ability to pass through cost increases and maintain its margins when milk prices go up.
“The other benefit that perhaps we’ve had over maybe this season is that is that it has not been a too rapid an ascent, so it gives you a bit more time to respond.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector, and energy. He joined the Herald in 2011.
