Why Fonterra (ASX:FSF) warned investors of tightening margins  

Summary

  • Fonterra (ASX:FSF) issued a warning to its investors saying that the company’s earnings could be under significant pressure in the last quarter of the year.
  • The dairy-cooperative said that the pressure on earnings was on account of seasonal profile of the business and tightening margins.
  • Fonterra narrowed its Farmgate milk price forecast to AU$7.45 to AU$7.65 per kgMS.

 Fonterra Shareholders’ Fund (ASX:FSF) on Wednesday issued a warning to its investors saying that the company’s earnings could be under significant pressure in the last quarter of the year. The dairy-cooperative said that the pressure on earnings was on account of seasonal profile of the business and tightening margins.

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Fonterra narrowed its Farmgate Milk Price forecast to AU$7.45 to AU$7.65 per kgMS from AU$7.30 to AU$7.90 per kgMS.

Source: ©Miflippo  | Megapixl.com

Company statement

Commenting on the development, CEO Miles Hurrel said that the company now has a large range on its forecast Farmgate Milk Price at this early stage due to several risks including the ongoing coronavirus pandemic, foreign exchange stability, demand and supply dynamics, geopolitical issues and impacts of governments winding back their economic stimulus packages.

Business performance

Fonterra reported a 61 per cent on-year rise in the normalised net profit after tax (NPAT) to AU$587 million for the nine months ending 30 April 2021. The company also said that the reported net profit after tax (NPAT) was up 2% to AU$603 million during the given period.

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Source: © Herrbullermann  | Megapixl.com

Earnings outlook

In its earnings outlook the company maintained its normalised earnings guidance of 25-35 cents per share. The normalised earnings per share so far this year stood at 34 cents. 

Stock performance

On Tuesday, 25 May 2021, the shares closed at AU$3.49, down 1.41%, or 0.050 points as against the previous closing on Monday, 24 May 2021. Fonterra is in competition with Treasury Wine Estates Ltd (ASX:TWE) and Metcash Ltd (ASX:MTS, Woolworths Group Ltd (ASX:WOW), Coles Group Ltd (ASX:COL), among others in the consumer sector.

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