Index slips after profit drops at Fonterra

Shares in Fletcher Building declined 2.8 per cent to $8.65 yesterday. Photo / Steven McNicholl

NZX 50 down 12.76 points as co-op reports tough times and posts a 16% drop in earnings.

New Zealand shares fell, led by Fonterra Shareholders' Fund, after the world's biggest dairy exporter lowered its guidance for dividends. Spark New Zealand and Fletcher Building paced the decline after shedding rights to their dividends.

The NZX 50 Index fell 12.76 points, or 0.2 per cent, to 5857.78. Within the index trading was mixed, 18 stocks fell, 18 rose and 14 were unchanged. Turnover was $128 million.

Units of the Fonterra Shareholders' Fund, which are entitled to the dividends from the ordinary shares of Fonterra Co-operative Group, dropped 7.2 per cent to $5.56. The dairy company posted a 16 per cent drop in first-half profit to $183 million in the six months to January 31, which it said reflected tough conditions in dairy.

It also confirmed its forecast payout for the current season of $4.70 kg/MS, down from a record $8.40 kg/MS last season, with guidance for dividends trimmed to a range of 20c to 30c, from a previous 25c to 35c.

"Pretty disappointing result all round from Fonterra, the price is down some 6 per cent and it probably deserves to be," said Mark Lister, head of private wealth research at Craigs Investment Partners. "The profit was much lower than market expectations, the dividend guidance was downgraded from where people expected it to be, it looks like full-year profits will be lower than where markets expected them to be, costs look to be higher, capital expenditure looks to be higher, so it was a pretty poor result all round."

Spark fell 5.3 per cent, or 16.5c, to $2.975 as it shed rights to its 9c per share interim dividend. Fletcher Building declined 2.8 per cent, or 25c, to $8.65 as it gave up rights to its 18c per share dividend. "It's a bit of a red herring with those two, as all they've done is fallen to reflect the dividend they've been paid," Lister said.

Kathmandu Holdings was the best performer on the benchmark index climbing 2.9 per cent to $1.44, after being smacked down some 13 per cent on Tuesday when the outdoor goods retailer posted a loss of $1.8 million in the six months ended January 31, from a profit of $11.4 million the previous period.

"It got pounded [on Tuesday]," Lister said. "It rallied going into the result and it was obviously weaker than expected, or it just didn't have the good news people were looking for so [the] reaction is probably a bit of a bounce from having fallen so much earlier in the week."

Contact Energy was unchanged at $5.90. The energy generator and retailer has fallen some 6 per cent since the start of the year, after it kept its first-half dividend unchanged and said it would look overseas for better returns after first-half earnings fell in what it called an oversupply in the New Zealand electricity market.

"The jury is out on Contact, it's out of favour because we're all a bit unsure on what management is doing in terms of the expansion strategy," Lister said.