Fonterra did not give any 2019 dividend guidance in its 2018 earnings report, saying priority will be given to reducing debt. At its July 31 balance date Fonterra had total assets of $18 billion with total liabilities of $11.66b, including nearly $7b of borrowings.
Reducing borrowings on the forecast earnings range suggest uncertainty on dividend levels, Forsyth Barr said in a research note.
It also noted the ongoing clear conflicts between dairy farm shareholders and the unit holders, which are unlikely to be repaired in the medium term.
Farmers want maximisation of the farmgate milk price while unit holders want a lower milk payout and higher dividends.
Fonterra scrapped the final dividend on last year’s figures, leaving unit holders with just the 10c a unit interim payout.
It expects earnings a share in the 25c to 35c range this year.
Forsyth Barr has a forecast of just under 29c a share.
It said global consumer and food service markets remain attractive but competition is intense in Fonterra’s key markets and earnings uncertainty is commonplace because of volatile commodity prices and input costs.
Fonterra reported a bottom-line loss of $196 million in the latest year because of big, one-off charges.
However, its normalised earnings before interest and tax dropped to $902m from $1.15b a year earlier, a 22% fall.
Its $416m in interest costs were covered only a bit over two times by the Ebit figure. Interest costs of $355m a year earlier were covered just over three times by Ebit.
Forsyth Barr noted the combination of higher debt and lower earnings.
The Fonterra units did eke out a 5c rise to $5.01 on the NZX after the result was reported but were still down 20% from the $6.27 at which they started this year.
