Improved profit expected in Fonterra announcement

  • 23/03/2016
Improved profit expected in Fonterra announcement

Fonterra is expected to announce a much improved profit this morning, at a time when its farmers are struggling with much lower dairy commodity prices.

Brokers at Forsyth Barr are forecasting a six month after tax profit of $389 million. That would be a 136 percent increase from the same period a year ago.

The slump in dairy prices means Fonterra's costs are lower when it makes its value-added products.

Two weeks ago Fonterra lowered its forecast milk price for this season to $3.90 per kg of milk solids.

It has forecast additional earnings of 45 to 55 cents per share.

Fonterra management is expected to announce details of additional support for farmers. That might be an extension of last year's interest free loans.  Back then farmers were able to apply for an interest-free loan of 50 cents for every kg produced between June 1 and December 31. The loans were interest free until May 2017.

But that would be a drain on Fonterra's balance sheet, which already has relatively high debt levels.

Another option for Fonterra would be to increase the amount of the earnings that it pays out to farmer shareholders as a dividend.

There will be lots of questions for management. The cooperative has faced criticism over its treatment of suppliers.

Farmers and investors will want to know how much progress Fonterra is making in ramping up the value-add (packaged products) side of the business.

Newshub.

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