Release Date: March 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Fonterra Co-operative Group Ltd (NZSE:FCG) reported an 8% increase in profit after tax, reaching $729 million.

• The company has successfully accelerated the advance rate schedule, providing cash to farmers sooner.

• Fonterra announced new funding for farmers with low emissions milk and expanded the fixed milk price program.

• The company paid a fully imputed interim dividend of $0.22 per share, up from an unimputed $0.15 last year.

• Fonterra's ingredients channel achieved better margins and a favorable product mix, contributing to a $192 million increase in gross profit.

Negative Points

• Operating expenses increased by $99 million, partially offsetting the improved gross profit.

• Net debt increased by $1.3 billion to $5.5 billion, reflecting higher milk collections and value.

• The food service and consumer channels experienced a decline in operating profits compared to last year.

• The company's gearing ratio increased to 39.4% due to higher debt levels.

• The global geopolitical outlook remains uncertain, posing potential risks to Fonterra's operations.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with LSE:FNTL.

Q: How is Fonterra managing the global economic uncertainty and its potential impacts? A: Miles Hurrell, CEO, stated that while global uncertainty impacts their business, Fonterra is well-prepared to handle these challenges. The focus remains on controlling what they can and navigating external factors effectively.

Q: Are tariffs a concern for Fonterra, and how do they affect the company? A: Miles Hurrell, CEO, emphasized that Fonterra advocates for free trade globally. While tariffs are not ideal, the company is adept at navigating these challenges to minimize impact on their operations.

Q: What is Fonterra's stance on the inclusion of dairy in the India free trade agreement? A: Miles Hurrell, CEO, expressed optimism as dairy is part of the negotiations. He highlighted the potential benefits for both the agricultural sector and the Indian economy, given India's status as a major dairy consumer and producer.

Q: How does Fonterra justify high domestic butter prices despite strong earnings? A: Miles Hurrell, CEO, explained that international market demand influences milk prices, which in turn affects domestic prices. He noted that the consumer business is the lowest performing channel, suggesting some level of subsidy is already in place.

Q: What are the prospects for Fonterra's consumer sales business amid divestment plans? A: Miles Hurrell, CEO, described the consumer sales business as a positive story, with ongoing roadshows showing confidence from potential investors. The divestment aligns with Fonterra's strategy to focus on ingredients and food service.