War-free first half year a jewel for Fonterra, but geopolitics could sour second half
Monday, 23 March 2026
Fonterra will be distributing nearly $4 billion in cash to shareholders in the company in the middle of April - the result of a bumper first-half year and the dividend from the sale of the dairy giant’s brands business.
And the payout means at least a bit of a much-needed boost to the New Zealand economy.
But outgoing chief executive Miles Hurrell has warned that the second half-year may take a bigger hit from war in the Middle East.
This morning, Fonterra reported an 8% revenue growth to $13.9b, in advance of expectations, and profit after tax growth of 3% to $750 million, compared to the prior comparative period.
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Shareholders will receive an interim dividend of 24 cents per share (cps) – up from 22cps the period prior – from company earnings, and and a special Mainland (brands business) dividend of 16cps from the earnings of that business before its sale, as well as a tax-free $2 per share capital return from the sale of the business as Fonterra pays out $3.9b to farmer-shareholders.
In addition, the co-op has also lifted its forecast Farmgate Milk Price midpoint for the season from $9.50 per kgMS to $9.70 per kgMS, with the range changing from $9.20-$9.80 per kgMS to $9.40-$10.00 per kgMS. It has also adjusted upwards its full year earnings guidance for continuing operations from 45-65 cents per share to 50-65 cents per share.
But Hurrell, who resigned this month after eight years as chief executive, cautioned conflict in the Middle East was having an impact on the company’s supply chain and had the potential to increase Fonterra’s inventory levels and costs over the course of the second half of the year.
There was also the potential for further volatility in global commodity prices.
“The conflict is a complex and dynamic situation that is changing daily, but we are confident that we’re on the right track to get product to customers,” he said.
“Our business is designed to manage volatility. Our scale and strong relationships with customers and logistics provider Kotahi will help us to navigate through these challenges better than most. With this in mind, we remain focused on delivering on our strategic targets.”
Strategy
Hurrell said the first half of the year had been shaped by strong milk flows, with the co-op collecting record milk volumes in the South Island so far this season.
When combined with several adverse weather events, these conditions had put pressure on the operations of all New Zealand milk processors.
Fonterra’s protein portfolio in its Ingredients business delivered a return on capital in that division of 11% and in Foodservice a return on capital of 12.6% from improved pricing to successfully recover the lift in butter and cream input costs seen last year.
The divestment of the Mainland Group brands business had been one of the key events over the period under review, and the sale of the business to Lactalis for $4.22b is now unconditional and expected to complete at the end of March 2026.
“Our focus now is firmly on our strategy to grow value for farmers as a global B2B dairy nutrition provider, working closely with customers through our high-performing Ingredients and Foodservice channels,” Hurrell said.
The company was building new manufacturing capacity across several New Zealand sites to help meet growing demand for proteins, butters and creams, and to build revenue streams to make up for the loss of the brands business. These included the now-complete construction of a new advanced protein hub at Studholme, with first trial products off the line in February 2026.
A new butter plant expansion has been started at Clandeboye, with products off that line to start in April 2027, construction of a new UHT cream plant is underway at Edendale, with product coming on strea later this year.
A $35m investment in expanding our pastry butter sheet line, to support continued demand through Foodservice for butter products has seen site works start at Edgecumbe.