* Normalised EBIT falls 41 pct to NZ$403 mln on rising costs
* Net profit down 53 pct at NZ$217 mln
* Dividend 5 NZ CPS, company on track for lower FY earnings
(Adds comment, details)
By Naomi Tajitsu
WELLINGTON, March 26 New Zealand's Fonterra
reported a 41 percent fall in first-half earnings on Wednesday
as the farmer-owned co-operative's margins were hit by higher
costs, too much milk, and a lack of capacity to process
The world's largest dairy exporter, which controls about a
third of global dairy exports, said normalised earnings before
interest and taxes (EBIT) fell to NZ$403 million ($345 million)
for the six months to Jan. 31, compared with NZ$693 million a
It said net profit after tax fell 53 percent to NZ$217
million even as revenues climbed 21 percent to NZ$11.3 billion,
as the company has struggled to capitalise on record-high world
Dairy prices have been rising due to surging demand for milk
powder from China and other emerging countries, where growing
middle classes are developing a voracious appetite for infant
formula and other products.
Fonterra should be flying high on the back of the "white
gold" rush as it earns its best returns from milk powder, but
higher prices have ramped up its input costs, while it has
struggled to meet demand due a lack of factory capacity.
At the same time a bumper dairy season in New Zealand has
resulted in all-time high volumes, which Fonterra is obliged to
buy at historically high milk prices. What cannot be made into
milk powder has been used for cheese products, which Fonterra
said earned negative returns over the period.
"Higher dairy commodity prices have put increasing pressure
on margins in our consumer and foodservice businesses," Fonterra
Chief Executive Officer Theo Spierings said in a statement.
"We had to strike a balance between passing on rising costs
immediately or continuing to build our market presence to secure
long term growth ... Taking the longer term view has constrained
profitability during this run of strong commodity pricing."
The company cut its interim dividend to five NZ cents per
share compared with 16 cents last year, and reaffirmed that it
expected to pay a full-year dividend of 10 cents per share, down
from 32 cents last year.
It also maintained is farmgate milk price forecast of
NZ$8.65 per kg of milk solids for the year to July, less than
its official reference price of NZ$9.35 calculated from global
dairy prices set at the co-op's fortnightly auctions.
In December, Fonterra warned that it expected full-year
earnings to fall to around NZ$500 million-NZ$600 million from
last year's NZ$1 billion.
Analysts said that the earnings fall reported on Wednesday
showed that high dairy prices were hitting its global
"The results were what we were expecting. They reported the
higher input costs, or the milk price through margin compression
across their different businesses," ANZ rural economist Con
He added that the first-half results suggested that Fonterra
could achieve its full-year earnings forecast, while adding that
ongoing high milk prices "could cloud the long-term picture a
The company faces a lawsuit from France's Danone,
which is seeking compensation following a product recall of
infant milk formula in Asia last year due to a dairy
contamination scare which turned out to be a false alarm.
($1 = 1.1688 New Zealand Dollars)
(Reporting by Naomi Tajitsu; Editing by Anthony Barker)