Why the Fonterra (ASX:FSF) share price is moving higher

The Fonterra share price is rising today. We take a look at the dairy co-operative’s latest results and guidance.

| More on:
fish eye view of dairy cows in paddock

Image source: Getty Images

The Fonterra Shareholders’ Fund (ASX: FSF) share price is rising today, up 2% to $3.56 per share.

We take a look at the dairy co-operative’s updated forecast for the farmgate milk price and its Q3 performance for the nine months ending 30 April.

What results did Fonterra report?

Fonterra’s share price is moving higher after the co-op reported a 61% increase in normalised net profit after tax (NPAT) from the previous corresponding period. Normalised NPAT came in at $587 million. Fonterra credited its stronger balance sheet and improving underlying business performance for the boost.

Reported NPAT was $603 million, up 2% year on year.

Fonterra also reported an 18% year-on-year increase in its total group normalised earnings before interest and tax (normalised EBIT) of $959 million. It said lower operating expenses and higher margins helped drive the higher earnings.

Commenting on the results, Fonterra’s CEO Miles Hurrell said:

Greater China continues to be an important performer for us, delivering year-to-date normalised EBIT of $457 million, up 30% or $106 million year-on-year. Foodservice, once again, was the big driver behind this result, contributing $93 million of the growth. In the third quarter, the team continued to improve the strong gross margins we saw in Foodservice at half year by shifting milk into higher value products, for example cream cheese. As a result, the year-to-date margin increased from 21.5% to 28.6%.

Regarding the balance sheet, Hurrell added:

Fonterra’s operating expenses are down 5% year-to-date but we are planning some additional expenditure in the final quarter to support our brands and product initiatives for next year. Our debt reduction over the last couple of years and lower interest rates have reduced our interest bill by $69 million for the nine months ending 30 April 2021.

Looking ahead Fonterra maintained its normalised earnings guidance of 25 to 35 cents per share. The co-op noted that normalised earnings per share is currently sitting at 34 cents, but it expects the full-year results will fall in the middle of its guidance range as earnings come under some pressure during the fourth quarter.

Farmgate milk price update

Fonterra also revealed its opening forecast farmgate milk price range for the 2021–22 season. It forecasts a price of NZ$7.25–8.75 per kilogram of milk solids (kgMS), with a midpoint of NZ$8.00 per kgMS.

“Based on… supply and demand dynamics, along with where the NZ dollar is sitting relative to the US dollar, we’re expecting whole milk prices to remain at current levels for the near future,” Hurrell said.

Fonterra share price snapshot

Fonterra’s shares have lagged the wider All Ordinaries Index (ASX: XAO) over the past year, up 5.3% compared to a 24.5% gain on the All Ords.

Year-to-date the Fonterra share price is down 15.2%.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of May 24th 2021

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News