25 Mar 2013

Drought seen as unlikely to dent Fonterra profit

6:45 am on 25 March 2013

An investment specialist does not expect the North Island drought to have a serious impact on Fonterra's half-year results.

Fonterra will release the results later this week.

Last month it left its forecast payout for the current season unchanged despite a rise in global dairy prices, saying it would pay its farmers between $5.90 and $6 a kilogram of milk solids.

But prices surged at last week's global dairy auction, taking the rise in in dairy prices this year to 38% and stirring speculation about a rise in milk payments.

Craig's Investment Partners head of research Mark Lister says there are a number of key things he will be looking at in this week's results, including any signs of Fonterra's cost-reduction programme, signs of a turnaround in its New Zealand branded business and any strength or improvement in its Asian business.

Mr Lister says he will also be looking for any mention of the drought and whether it's having an impact on supply or profitability.

In terms of the financials and profitability, he says, the drought is likely to have less of an effect on Fonterra than people might assume.