Compared with a buoyant first quarter last year – before the financial clouds descended – revenue, sales volumes and gross margin were down and operating expenses and capital expenditure were up.
Gross margin was $646 million, down $14m, revenue was $3.8 billion, down 4%, sales volumes were 3.6b litres liquid milk equivalent (LME), down 6%, operating expenses were up 3% and capital expenditure $188m, up $46m.
Chief executive Miles Hurrell warned Fonterra’s first-quarter results do not generally give much insight into expected earnings performance for the full year.
Nonetheless, the directors maintained their earnings forecast of 25c to 35c a share based on a milk price in the revised $6 to $6.30/kg milksolids range.
Hurrell turned the spotlight on challenges to be addressed in Australian ingredients, China food service, and Asian food service.
Lower milk collection in Australia, down 12% season-to-date, was caused by drought and increased competition for supply and Fonterra has to respond by cutting its operating expenses.
The first-quarter food service numbers in China and other Asian markets were lower compared with high sales volumes of butter and cream cheese in 2018 and a slower start to sales of UHT cream.
Sales volumes were down 20% or 81m LME and gross margins down $34m, slightly offset by better food service margins in Oceania and Latin America.
Food service as a whole lost 15% of its volume and $28m of its gross margin for the quarter, a new worrying trend when food service sales had been expanding quickly, particularly in China.
Operating expenses and capital expenditure were higher compared with Q1 2018, mainly because of commitments made before the revised targets were set but Hurrell said the targets are still within reach.
Progress is being made in fixing businesses that were not performing, starting with Fonterra Brands NZ where new managing director Brett Henshaw, formerly of Griffins, Unilever and Colgate-Palmolive, had begun work this month.
Also on the positive side, the ingredients division delivered a gross margin of $273m, up $28m, and consumer businesses grew their volumes by 5% and their gross margins of $310m were up $10m.
