They say weather conditions experienced recently in some parts of the country are causing a slow start to the season, most recently the floods in the Far North and top part of the South Island.
Fonterra CEO Miles Hurrell says the lift in forecast earnings is a continuation of the ongoing strong demand for dairy that saw Fonterra confirm its FY22 earnings were at the top end of the guidance range.
“The demand signals we saw at the end of FY22 have continued driving improved prices and higher margins across our portfolio of non-reference products, particularly in cheese and our protein products such as casein.
“We see strong underlying demand and the latest lift in whole milk powder prices on GDT is also a positive signal reversing the recent easing in the prices that drive our Farmgate Milk Price. Strong offshore prices for protein, as reflected in the recent increase in EU and US milk prices, mean our protein portfolio has been performing very well.
“This sustained period of favourable pricing relativities between our protein and cheese portfolios and whole milk powder is the main driver for the increase in the FY23 earnings guidance range being announced today. If these unprecedented conditions were to continue for a further extended period this could have an additional positive impact on forecast earnings.
Fonterra share price
Select chart tabs
5 Comments
Basically, by sitting tight. It is all about what is happening in the outside world. Fonterra expects cheese and casein prices to stay high relative to WMP prices. And if that occurs (it is no certainty) then more of Fonterra's gross earnings go to profit and less is paid out to farmers via the milk price.
More broadly, Fonterra will be hedging at the current NZD/USD price with this assisting both the farm gate milk prices and the profits. Essentially, dairy is in a remarkable sweet spot and this is playing a key role in helping to prevent collapse of the NZ export-led economy.
KeithW
Midpoint of the new revised earnings estimate gives a P/E ratio for one of the biggest business in NZ of .......... around 5. The FCG shares have moved a few cents today but very muted reaction to pretty bullish new earnings estimates ... give the shares a P/E of just 7.5 with 60c of earnings and you hit a share price of $4.50 vs current $2.70 ! . A 30c dividend also now looks likely which gives a very healthy current yield of 11% ...
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.