Fonterra Raises FY24 Earnings Forecast and Farmgate Milk Price after Strong Q1 Performance

Highlights:

• Fonterra Co-operative Group Ltd has kicked off the fiscal year with robust performance.
• The positive outlook is attributed to heightened demand in key importing regions, particularly China, resulting in improved Global Dairy Trade prices.
• Fonterra CEO Miles Hurrell expressed confidence in the revised forecast, citing strengthened demand and well-contracted sales.

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Optimistic Start

Fonterra Co-operative Group (ASX:FSF) Ltd has kicked off the fiscal year with robust performance, prompting an upward revision in its forecast for Farmgate Milk Price and earnings for FY24. The forecast midpoint for Farmgate Milk Price in the 2023/24 season has increased by 25 cents to AU$7.50 per kgMS, with the range now adjusted to AU$7.00-AU$8.00 per kgMS. The positive outlook is attributed to heightened demand in key importing regions, particularly China, resulting in improved Global Dairy Trade prices.

CEO's Confidence

Fonterra CEO Miles Hurrell expressed confidence in the revised forecast, citing strengthened demand and well-contracted sales. While acknowledging the potential for commodity price volatility, Hurrell affirmed the Co-op's commitment to monitoring market dynamics closely and providing updates as necessary.

Earnings Surge

The Co-op reported a substantial 85% year-on-year increase in profit after tax to AU$392 million, equivalent to 24 cents per share. Earnings Before Interest and Taxes (EBIT) also surged by 63% to AU$575 million. Hurrell attributed this impressive performance to higher margins across the Co-op's sales channels, with gross margin rising from 15.5% to 21.4%.

Channel Performance and Future Outlook

Fonterra's earnings boost stems from improved performance in its Ingredients, Foodservice, and Consumer channels. While anticipating continued high margins in the first half of the year, Hurrell expects some tightening in the second half due to rising input costs. The Co-op remains on track for a strong interim dividend, reflecting the positive momentum in its business.

Strategic Progress

Fonterra highlighted strategic milestones achieved during the first quarter, including the divestment of DPA Brazil and the completion of the sale of Soprole. The Co-op is actively pursuing commercialization opportunities, such as collaborations in Japan for adult milk powder and in Greater China for a probiotics-infused cake. Fonterra's commitment to sustainability is evident in its target of a 30% reduction in on-farm emissions intensity by 2030.

Positive Momentum

CEO Hurrell expressed satisfaction with the first-quarter results, emphasizing the positive momentum across Fonterra's business. The Co-op's focus on innovation, sustainability, and strategic divestments positions it well as it works towards achieving its ambitious 2030 goals.

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