Fonterra Cooperative Group (NZX:FCG) raises earnings forecast, here’s why

Highlights

• FCG lifts its earnings forecast for FY23 due to ongoing dairy demand
• Lowers its milk collection forecast due to weather conditions
• Its cheese and protein portfolio drove demand

Fonterra Cooperative Group (NZX:FCG), the world’s biggest dairy exporter, raised its earnings forecast for FY23 to 45 to 60 cents per share, up from 30 to 45 cents per share, due to the ongoing increased demand for dairy.

The Company also revised its forecast for milk collections for the 2022/2023 season, down from 1,510 million kg of milk to 1,495 million KgMS due to wet weather.

Last month, FCG said that 2021-22 earnings per share would be the top end of its 25-35 cents guidance range. The increase in forecast earnings is due to strong demand for dairy, which also led to strong earnings in FY22. 

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Reasons for the raise

Fonterra Miles CEO Hurell says that the demand signals that were there by the end of FY22 have continued to drive improved prices and higher margins across a portfolio of non-reference products, particularly cheese.

There is a surge in demand and the latest increase in prices of whole milk powder has also seen a reversal of the recent easing of prices.

Besides that, strong offshore prices for protein as reflected in recent prices in the EU and US milk prices, also signal that the protein portfolio has done well, he added.

CEO speaks

Mr Hurell said this sustained period of favourable pricing between the company’s protein and cheese portfolios and whole milk powder is the main driver for the increase in the 2023 earnings guidance range being announced on Friday.

The dairy company is committed to its 2030 targets and expects variable market conditions as it moves towards them. He also said that the benefit of being part of the Co-operative is to have a diversified organisation with an extensive portfolio of products that capture value in a broad range of market conditions.

Mr Hurell said that the company’s strategy was based on the growing demand and constrained supply. It will focus on shifting farmers’ milk to higher-value products. He also said that recently the Co-operative had seen a reduction in milk collections due to wet weather conditions. However, the company will continue to work with the impacted farmers to ensure that if they need extra support, they get it.

Recently, global dairy prices also rose in the global dairy trading auction (GDT). The average price at the fortnightly sale increased 4.9% to US$4001 per tonne after falling 2.9% in the previous auction.

In this auction, the price of whole milk powder was up 5.1%, and other product prices like butter, cheddar, and skim milk powder also increased.

The stock was trading up 4% by mid-day trade.