Fonterra Reports $1.1 Billion Profit Amid Record Payouts

Fonterra, New Zealand’s leading dairy cooperative, announced a profit after tax of $1.1 billion for the financial year ending July 2024. This marks a 4% decline from the previous year, yet the cooperative’s farmer shareholders received a record payout of $16.2 billion. The total revenue for the 2024/25 season reached an impressive $26 billion, reflecting a 15% increase year-on-year.

The results, released on September 25, 2024, revealed that Fonterra raised its final payout slightly to $10.16 per kilogram of milksolids. This is an improvement over last month’s estimate of $10.15/kg, which was part of a narrowed range of $10.10/kg – $10.20/kg. The cooperative has maintained its forecast midpoint milk price for the season at $10/kg, based on a projected range of $9/kg – $11/kg.

Fonterra declared a final dividend of 57 cents per share for the 2024/25 season, up from the previous 55 cents. The cooperative collected just over 1.5 billion kilograms of milk solids during this period, a 2.6% increase compared to last year.

The increase in operating profit to $1.7 billion, up from $1.5 billion in the prior year, was overshadowed by the decline in profit after tax. Fonterra attributed this decrease primarily to a higher tax expense. The cooperative opted not to deduct distributions to farmer shareholders from its taxable income, instead attaching imputation credits to dividends.

Strategic Growth Initiatives

Fonterra’s Chief Executive Officer, Tim Cronshaw, highlighted strong global demand for high-quality dairy products from New Zealand farmers. He emphasized that this demand supports returns through both the farmgate milk price and dividends. “Our vision is to be the source of the world’s most valued dairy,” he stated, adding that the cooperative’s strategy aims to enhance value for farmers by focusing on business-to-business (B2B) dairy nutrition.

The cooperative has made significant strides towards this goal, recently agreeing to sell its Mainland consumer business to French dairy giant Lactalis for $4.22 billion, pending regulatory approvals. “We’re also positioning the co-op to deliver further value through our foodservice and ingredients businesses,” Cronshaw said. This includes plans to invest up to $1 billion over the next three to four years in growth initiatives, particularly in high-value protein products and enhancing manufacturing capabilities.

Fonterra is also exploring upgrades across its sites, incorporating planning, data analytics, artificial intelligence, and automation systems. The cooperative aims to return earnings to current levels within three years, overcoming the financial impact of divesting its consumer and associated businesses. “Our balance sheet strength gives us the confidence to return capital, invest in the future of the business, and maintain our dividend policy,” Cronshaw noted.

The cooperative achieved a return on capital of 10.9%, aligning with its target range of 10% – 12%. This performance was bolstered by increased profits in the ingredients business, driven by strong protein demand, as well as growth in foodservice sales, particularly in greater China for products like UHT cream, butter, and mozzarella.

Future Outlook and Projections

Fonterra is targeting a capital return of $2 per share from the sale of the Mainland consumer business, amounting to approximately $3.2 billion. However, final decisions regarding the amount and timing of this return are still pending, subject to approvals from farmer shareholders and regulatory bodies. A special meeting for farmer shareholders is scheduled for October 30, 2024, to vote on this matter.

Looking ahead, the cooperative revised its forecast for milk collections in the 2025/26 season, increasing it from 1.49 billion kilograms to 1.525 billion kilograms. Cronshaw indicated that favorable weather conditions are expected to support pasture growth throughout spring.

While maintaining the $10/kg midpoint forecast for the current season, he acknowledged the delicate balance of market conditions. “Global Dairy Trade prices remain robust, as does demand from customers for our products,” he stated. Yet, he warned of potential volatility in commodity prices and exchange rates stemming from geopolitical dynamics.

Fonterra’s earnings forecast for the current season, excluding the sale of the Mainland businesses, ranges between 45 and 65 cents per share.

With robust financial results and strategic plans for growth, Fonterra is positioned to navigate the challenges ahead while continuing to deliver value to its farmer shareholders.