Fonterra has announced a profit after tax of NZ$1.158 billion in the third quarter (Q3), up NZ$119 million or 11% on this time last year.
As a result, the New Zealand co-op narrowed its year-end earnings range to 65-75 cents per share, which is at the upper end of the guidance provided in March of 55-75 cents per share.
Fonterra also confirmed an opening forecast farmgate milk price for the 2025/26 season of $10.00 per kg of milk solids (MS), driven by stable near-term market demand.
Fonterra
Miles Hurrell, Fonterra chief executive, said that the co-op is committed to delivering strong shareholder returns through both earnings and the farmgate milk price.
“We’ve delivered strong shareholder returns through the 2025 financial year (FY25), including a 22-cent interim dividend, and as we get closer to the end of the year, we are focused on maintaining this momentum.
“Our forecast farmgate milk price for the current season is driven by strong demand for our milk price reference products and our range is unchanged at $9.70-$10.30 with a midpoint of $10.00 per kg/MS.
“We’re also pleased to tighten our year-end forecast earnings within the existing range, given the strength of our third quarter performance,” he said.
Hurrell said that they expect dairy demand “to continue for now”, but acknowledged “the ongoing geopolitical uncertainty and the potential for a wider series of outcomes across the season”.
“Therefore, our opening forecast Farmgate Milk Price for the 2025/26 season of $10.00 per kg/MS sits within a wide forecast range of $8.00-$11.00 per kg/MS.
“For the current season, the milk price of $10.00 per kg/MS equates to around $15 billion into the New Zealand economy.
“The majority of this flows into regional New Zealand where it plays a strong role helping to sustain local communities,” he said.
Financial performance
Fonterra’s focus on optimising its product mix has driven a Q3 normalised profit after tax of $1.158 billion, equivalent to 70 cents per share, with operating profit of $1.740 billion, up $267 million on last year.
“This result reflects the scale and ongoing strength of our Ingredients channel, and volume growth in our foodservice and consumer channels with each channel increasing its third quarter performance compared to the same period last year.
“Our rolling 12-months return on capital is 11%, which is above our previous target for FY25 and within our long-term target range of 10-12%,” Hurrell said.
“Our full year forecast earnings range of 65-75 cents per share assumes flat earnings in Q4 of FY25 due to the seasonality of our milk collections, the higher input prices for our consumer and foodservice businesses, ongoing investment in our ERP system and an increase in costs associated with shaping the co-op post divestment to execute our strategy.
“We are heading into year-end with a strong balance sheet and full year debt metrics on track to be below the co-op’s target range,” he added.
Strategy
Hurrell said a priority for Fonterra this year has been the implementation of its strategy, which deepens the co-op’s focus on its high-performing ingredients and foodservice businesses.
Last year, Fonterra announced a “step-change” in its strategic direction, including a decision to divest its global consumer and associated businesses.
The co-op has been testing the terms and value of both a trade sale and initial public offering (IPO) as divestment options.
The Fonterra chief executive said the co-op will seek farmer shareholder approval to divest through a vote “in due course”.
“If we divest our consumer business, we will still be a co-op with global reach and scale, and a diverse product mix sold to customers in more than 100 countries.
“By focusing on our core strengths and the sales channels that deliver the highest returns, we have the confidence to target an average return on capital of 10-12%, which is above our five-year average.
“This is alongside paying farmers the highest sustainable farmgate milk price, which we are always committed to,” Hurrell said.
