Fonterra is sticking with its 25 to 35 cents per share earnings forecast for the current year despite experiencing "multiple events" worldwide and a decline in earnings over the first nine months.
The dairy co-op said its normalised net profit fell by 20 per cent to $472m due to disruption in its key markets of China and Sri Lanka, and to the war in Ukraine.
Fonterra pitched its farmgate milk price range for the 2022/23 season at $8.25 to $9.75 per kg of milksolids - with a mid-point of $9.00 per kg.
For the 2021/22 season - which finishes this month - Fonterra maintained its 2021/22 forecast milk price of $9.10 - $9.50 per kg.
At a midpoint of $9.30 per kg, this would be the highest forecast milk price in the co-op's history and would see it contribute almost $14 billion into the New Zealand economy through milk price payments.
Worsening economic turmoil in Sri Lanka had driven the Sri Lankan rupee sharply lower, resulting in an $81m, "adverse revaluation" in its business payables to New Zealand.
"We are managing multiple events in multiple markets in what is an increasingly volatile environment," chief financial officer Marc Rivers said in a results conference call.
"But because of our depth and breadth of scale, and ability to shift products between markets, we have been able to continue to deliver solid earnings around a strong milk price, despite all the challenges," Rivers said.
Chief executive Miles Hurrell said the Ukraine conflict was hitting markets on many fronts, not just the supply chain but also Fonterra's farmers, who now face higher on-farm costs, such as fertiliser.
Fonterra has long had a 25 to 35 cents per share earnings forecast for the current year on its books and today's result did not alter it.
"While favourable price relativities in the fourth quarter are positive for earnings, we expect continued pressure on our margins due to the higher milk price coupled with the normal seasonal profile of our business," Hurrell said.
Fonterra's sales volumes were down in the nine months as a result of lower milk collections and the timing of sales due to short-term impacts on demand, including the lockdowns in China, the economic crisis in Sri Lanka and the Russia-Ukraine war.
Total group normalised ebit were $825m, down $134m, reflecting lower sales volumes, continued pressure on margins from the significantly higher milk price, ongoing Covid-19 disruptions, and the rapid decline of the Sri Lankan rupee.
Hurrell said the opening milk price forecast reflected continued demand for dairy, coupled with constrained global supply.
"The long-term outlook for dairy remains positive, despite recent geopolitical and Covid-19 related events impacting global demand in the short-term," he said.
On the supply side, growth from key milk-producing regions was expected to remain constrained as high feed, fertiliser and energy costs continued to impact production volumes.
"These demand and supply dynamics are expected to support dairy prices in the medium to long-term," he said.
Earnings by region
Amena (Europe, Middle East & Africa, North Asia and the Americas) delivered normalised ebit of $406m, up 30 per cent, due to improved gross margins in Fonterra's Ingredients channel, and a strong performance from the Chilean business.
In Greater China, Ingredients continued to benefit from increased sales of higher margin products.
However, normalised Ebit was down 17 per cent to $317m, due to continued pressure on margins from the higher milk price, particularly in Foodservice, as well as the Covid-19 lockdowns.
Hurrell expected the impact of the lockdowns to show up in the fourth-quarter results.
Aside from some supermarkets, all restaurants and other food outlets were closed in Shanghai in early April to contain the Omicron outbreak.
While restrictions have started to ease, a number of food outlets remain closed, while other cities across China are facing Covid-19 restrictions.
"The impacts of this, and the disruptions to supply chains, have been felt across the market and is reflected in our Greater China sales volumes which are down on the same time last year."
APAC's (the wider Pacific, South and East Asia region) normalised Ebit was down 43 per cent to $177m.
"While our Australian business and Ingredients channel continued to perform well, this was more than offset by the economic challenges in Sri Lanka, margin pressure from the higher milk price and other Covid-19 related issues," the co-op said.
Hurrell said the co-op was continuing its ownership review of its Australian business and the divestment process for the Chilean business, Soprole, was under way.
The co-op plans to return around $1b of capital to shareholders by 2024.