Shares in the Fonterra Shareholder Fund have fallen after the dairy co-operative said it would make less money this year due to the drought, rising global milk prices and several write-offs in its struggling Australian business.
It has lowered its earnings forecast for the 12 months ending July to about $1 billion, down from the $1.079 billion predicted earlier, prompting shares to fall as much as 3.7%, to $7.20.
The company's forecast payout to farmers remains unchanged at $6.12, although this will be reviewed at its board meeting next week.
Craigs Investment Partners private wealth head Mark Lister said Fonterra's margins were being squeezed on both sides of the Tasman.
"Their Australian business is still under a bit of pressure, margins are getting squeezed, there's quite competitive supplier behaviour and the two supermarkets over in Australia make things quite difficult for them," Mr Lister said.
"So that business is struggling a little bit and isn't turning around as quickly as they would like."
Fonterra said it was restructuring its struggling Australian operations, which would result in a number of write-offs this financial year.
However, it would not give details, and no one was available for comment.
Shares in the Fonterra Shareholder Fund fell as much as 28 cents to $7.20 before ending Thursday at $2.27.
