22 Sep 2014

Fonterra expects big profit drop

5:22 am on 22 September 2014

Fonterra's financial result for the year ended 31 July will be issued later this week, with profit expected to be about $0.5 billion less then it earned the year before.

The dairy giant guidance is for operating profit to come in between $500 million and $600 million and most analysts expect it to be at the lower end of that range.

Fonterra is also expected to pay a full year dividend of 10 cents per share, which is less than a third of the 32 cents it paid the previous year.

Forsyth Barr analyst James Bascand said the market was also expecting Fonterra to revise down its forecast payout to farmers from $6 per kilo of milk solids to somewhere between $5 and $5.50.

He said the high farmgate milk payout for the 2013-2014 year has had a significant effect on Fonterra's earnings.

Mr Bascand said the company's forecast EBIT (earnings before tax and interest) has almost halved from almost $1 billion in 2013.

He said this year's result was likely to be a one-off because of a significantly lower farmgate milk price which should drive a significantly improved EBIT line for Fonterra for the coming year.

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