Fonterra Increases Farmgate Milk Price and Issues FY25 Earnings Guidance
FSF (FSF) Share Update September 2024 Tuesday 24th
Fonterra Announces Increase in Farmgate Milk Price and Earnings Guidance
Fonterra Co-operative Group Ltd has announced a significant increase in its 2024/25 forecast Farmgate Milk Price and provided earnings guidance for FY25.
Instant Summary:
- Farmgate Milk Price midpoint raised to $9.00 per kgMS.
- FY25 earnings guidance set at 40-60 cents per share.
- Global Dairy Trade prices showing strength.
- Constrained milk supply in key producing regions.
- Total dividend for FY24 announced at 55 cents.
Farmgate Milk Price Increase
Fonterra Co-operative Group Ltd has announced a 50 cent increase in its 2024/25 forecast Farmgate Milk Price midpoint, raising it to $9.00 per kgMS. This announcement comes as a result of recent strengthening in Global Dairy Trade prices and a constrained milk supply in key producing regions.
CEO Miles Hurrell expressed his satisfaction with the increase, noting that it would be welcome news for farmers. This increase, combined with the 55 cent total dividend for FY24, is expected to provide significant financial relief to Fonterra's farming community.
FY25 Earnings Guidance
In addition to the milk price increase, Fonterra has also provided its earnings guidance for FY25. The cooperative is forecasting earnings of 40-60 cents per share. Hurrell explained that this forecast reflects an expectation of maintaining strong margins across all three of Fonterra's sales channels, while also investing in IT and digital transformation and incurring higher tax expenses.
Tax Implications
Fonterra's Chief Financial Officer Andrew Murray highlighted that the cooperative has exhausted its tax losses in FY24 and will now be paying tax. As a result, when Fonterra declares a dividend from FY25 and beyond, imputation credits will be available to be attached to the dividend. To ensure all shareholders receive these credits, Fonterra is changing how it treats supply-backed shares for tax purposes, which means more tax will be paid by the cooperative.
Murray noted that while this change does not impact Fonterra's operating performance, it will reduce reported earnings per share in future years as the cooperative will have paid the tax on the cash to be distributed.
The increase in the Farmgate Milk Price and the positive earnings guidance for FY25 are likely to boost investor confidence in Fonterra. The higher milk price reflects strong market conditions and should support the cooperative's revenue. However, the new tax obligations could slightly dampen the overall earnings per share. Overall, the announcement is expected to have a positive impact on Fonterra's stock price.
Investor Reaction:
Analysts are likely to react positively to the increase in the Farmgate Milk Price and the earnings guidance. The strong market conditions and the cooperative's strategic investments in IT and digital transformation are seen as positive moves. However, the new tax obligations may raise some concerns about future earnings per share.
Conclusion:
Fonterra's announcement of an increased Farmgate Milk Price and positive earnings guidance for FY25 is a strong indicator of the cooperative's robust market position. Investors should consider the potential long-term benefits of the cooperative's strategic investments and the impact of new tax obligations. Staying informed about Fonterra's future announcements will be crucial for making informed investment decisions.