The New Zealand-based dairy exporter announced today that its earnings before interest and taxes (EBIT) for the financial year ending 31 July 2013 will be lower than it forecasted in its October 2012 Shareholders’ Fund Prospectus.
In the document, Fonterra forecasted normalised EBIT of NZ$1.079bn (US$867m, €657m) for FY 2013.
The company now expects, however, that its normalised EBIT for the full financial year will be closer to NZ$1bn (US$800m, €610m).
Fonterra has attributed today’s profits warning to “unprecedented” price volatility caused by the drought experienced in New Zealand earlier this year, and the “acceleration” of its Australian business restructuring efforts.
The combination of these two factors made it “sufficiently clear” that a profits update would be necessary, Fonterra said.
Drought, Australian restructuring impact
Hot, dry weather across New Zealand and Australia earlier this year led to a steep fall in milk production in the country.
This contributed to a 64% increase in the price of whole milk powder (WMP) on GlobalDairyTrade (GDT) – an auction platform for internationally-traded dairy commodities – since early 2013.
According to Fonterra CEO, Theo Spierings, this had a “temporary, but significant, negative impact” of the company’s NZ Milk Products’ (NZ Milk Product) business margins.
“At the same time, our Australian business remains under pressure,” said Spierings.
“Although a recovery plan is being implemented, it is in its early stages and will not counteract the impact on earnings of intense competition and the accelerated reshaping of our business. The reshape programme has resulted in a number of additional write offs,” he said.
Cash payout, earnings per share, dividend “unchanged”
Despite today’s profit warning, Fonterra has reconfirmed its forecasted cash payout, earnings per share guidance and annual dividend per share price.
The firm’s cash payout to its farmer shareholders remains unchanged at NZ$6.12 (US$4.91, €3.72), and the company prospective FY 2013 annual dividend per share of NZ$0.32 (US$0.26, €0.19) also remains the same.
Its earnings per share guidance range of NZ$0.45 (US$036, €0.27) to NZ$0.50 (US$0.40, €0.30) per share has also been reconfirmed, although Fonterra admits that it is likely to be at the lower end of the range.
Fonterra will provide a full update of its FY 2013 results on 25 September 2013.