Protein helps beef up profits

Fonterra’s first-quarter profit jumped 84% as it benefits from strong margins in its protein and cheese products.

The country’s largest dairy processor said normalised after-tax profit increased to $214 million in the three months to October 31, from $116m last year. Sales rose 32% to $5.79 billion.

Under chief executive Miles Hurrell’s leadership, Fonterra has been selling overseas assets, pulling the co-operative’s focus back to New Zealand where he is looking to eke out more value from the milk produced by its 9000 farmer shareholders.

Hurrell said Fonterra was making good progress and the long-term outlook for dairy remained strong. Fonterra raised its forecast for full-year earnings to 50-70 cents per share from 45-60cps.

‘‘It’s a very strong upgrade to guidance,’’ said Jeremy Sullivan, an investment adviser at Hamilton Hindin Greene. ‘‘They’re making progress and it’s obviously flowing through into a very strong operational performance for the first quarter.’’

In the latest quarter, Fonterra’s ingredients business benefited from favourable margins in its protein portfolio, particularly for casein and caseinate products used in medical nutrition, and whey protein concentrate used in products such as high protein beverages.

‘‘The sustained strong margins in our protein portfolio give us the confidence to upgrade our earnings guidance, although the wider range reflects the volatility in the market which we expect to continue in the short to medium term,’’ Hurrell said.

‘‘If these conditions continue for a further extended period, it could have an additional positive impact on forecast earnings.’’

Units in the Fonterra Shareholders’ Fund, which gives investors outside the co-operative access to its dividends, jumped 4.3% to $3.13 in midday trading on the NZX yesterday.

The co-operative’s foodservice business improved relative to the same period last year, but the high milk price put significant pressure on margins in both its foodservice and consumer divisions, Hurrell said.

The group’s profit margin lifted to 16.3% from 15.1% due to strong product prices, partially offset by higher milk prices paid to farmers.