Fonterra’s profit more than doubles on strong demand for dairy ingredients

(Reuters) -New Zealand’s Fonterra Co-Operative Group reported an annual profit on Thursday that more than doubled and declared a higher final dividend, citing strong margins from its cheese and protein portfolio.

The world’s biggest dairy exporter also benefited from higher product pricing and strong demand for its dairy ingredients and foodservice channel.

The company reported a normalised profit after tax, excluding the one-off gain from divestments, of NZ$1.33 billion ($788.3 million) for the year ended July 31, compared with NZ$591 million, a year earlier.

But Fonterra had a challenging start to fiscal year 2024 as the company trimmed its farmgate milk price forecast for the season twice in August, driven by weakness in international dairy prices with lower demand from China, the world’s top market for dairy imports.

“We acknowledge that across the year, farmers will continue to feel the pressure from high input costs and a reduced farmgate milk price,” CEO Miles Hurrell said.

The dairy giant also expects inflationary pressures and farmgate milk price outlook to impact its production levels.

Fonterra, however, said it expects to earn between 45 and 60 NZ cents per share from continuing operations in financial year 2024. That compares with normalized earnings of 80 NZ cents per share in fiscal 2023.

“We are watching market dynamics closely and there are indications demand for New Zealand milk powders will start to return from early 2024,” Hurrell added.

The Auckland-based company declared a final dividend of 40 NZ cents per share, compared with 15 NZ cents declared last year.

($1 = 1.6872 New Zealand dollars)