Fonterra increases earning per share range

UPDATED: Fonterra redundancies rise to 835, forecast earnings per share up 5c

EARLIER: Fonterra [NZX: FCG] has increased its earnings per share range to 45-55c for the financial year, lifting the co-operative's forecast payout to $5.05-5.15 per kgMS.

The dairy giant has also announced it is increasing the rate at which farmers are paid cooperative support to 50c kgMS, with the total amount paid up to December going from 18c to 25c.

Fonterra chairman John Wilson says the strong performance between August 1 and October 31 built on the strong second half of the 2015 financial year.

Dairy prices at the GlobalDairyTrade GDT auctions rose consistently at double digits between early August and late September, with a 9.9% increase in early October.

Since then, however, dairy prices seem to have lost momentum, dropping 3.1% at the October 20 auction, then a further 7.4% on November 3.

AgriHQ dairy analyst Susan Kilsby says the NZX futures market is anticipating a drop in dairy prices at the next auction.

Mr Wilson says while low global milk prices are tough on farmers, they will welcome the improvement in Fonterra’s performance, delivering increased returns.

“Performance is well ahead of last year and we are hitting our targets on gross margins and operating and capital expenses,” he says.

But he says at the same time the acceleration of business transformation initiatives is generating “significant cash savings.” 

“We are on track and therefore able to lift our forecast earnings per share range,” he says.

At this stage of the season, based on the dividend policy, Fonterra recommends that at the end of the financial year an annual dividend of 35-40 cents per share, which would then be subject to board approval.

This would equate to a total forecast cash payout of $4.95-5.00 per kgMS.

Fonterra chief executive Theo Spierings says the co-operative Support system – equalling 50c per kgMS on share-backed production from June to December through a loan that is interest-free until 31 May 2017 – is “supporting our farmers in a low milk price environment.”

The cooperative continues to forecast a reduction in milk collections in New Zealand for the current season of at least 5% – equivalent to roughly 150,000 MT of whole milk powder.

Mr Spierings says performance in the first quarter of 2016 built on the strong finish to 2015 with margins increasing across the group from 14% to 23%, compared to the same period last year.

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