Fonterra upgrades 2023 guidance after 94pc lift in Q1 operating earnings

Fonterra has upgraded its 2023 earnings prospects. Photo / NZME

Fonterra has upgraded its earnings guidance after a strong start to the 2023 financial year, and has slightly lowered its milk price forecast.

The co-op has elevated its current year earnings guidance to 50-70 cents per share from 45-60c. It has lowered and narrowed the milk price range to $8.50-$ 9.50 per kgMS, with a midpoint of $9.00 while holding its advance rate.

The previous milk price range was $8.50 to $10.00 per kg, with a $9.25 midpoint.

Fonterra’s first-quarter earnings before interest and tax (Ebit) shot up by 94 per cent to $368m.

The co-op’s normalised profit after tax was up 84 per cent at $214m.

Its normalised earnings per share came to 13 cents, compared with 7 cents at the same point last year.

Fonterra’s NZX- traded units rallied by 17 cents or 5.6 per cent, on the news.

Chief executive Miles Hurrell said it was a positive start to the year, given the current global operating environment.

“We continue to feel the impact of geopolitical and macroeconomic events, with higher costs at every point in our supply chain,” he said.

“It’s a similar story behind the farmgate with our farmer shareholders managing significantly higher input costs.”

Globally, milk supply from key exporting regions was down over the last 12 months, he said.

Production in Europe and Australia continued to be down, with US milk supply showing a slight improvement in recent months.

In New Zealand, milk production was down 2.9 per cent from the same point last season.

Global market volatility prompted some softening of demand for whole milk powder, especially in China and this was reflected in the lowered milk price range, he said.

“We’ve seen increased participation from other regions which has offset in part the drop in demand from Greater China,” he said.

“While it’s still early in the financial year, we are happy with our sales contract rate.”

“The strong performance of our ingredients channel reflects continued favourable margins in our protein portfolio, particularly for our casein and caseinate products used in medical nutrition.”

This was driving the increase in total group normalised Ebit, he said.

“The sustained strong margins in our protein portfolio give us the confidence to upgrade our earnings guidance, although the wider range reflects the volatility in the market which we expect to continue in the short to medium term.

“If these conditions continue for a further extended period, it could have an additional positive impact on forecast earnings.”

Performance in the co-op’s foodservice channel improved relative to the same period last year, but the high milk price is continuing to put significant pressure on margins in both the foodservice and consumer channels.

Hurrell said significant progress had been made on shipping the additional inventory held at the last financial year’s end.

“As planned, inventory volume has returned to normal levels,” he said.

Lower milk collections at the start of the season also contributed to the reduced inventory levels.