Fonterra’s FY26 Q3 results show a $1.8 billion operating profit, up $103 million year-on-year, prompting an uplift and narrowing of earnings guidance. The co-op also announced a stable 2026/27 Farmgate Milk Price forecast amid rising milk collections and ongoing geopolitical risks.
- FY26 YTD operating profit rises to NZD 1.8 billion, up NZD 103 million
- Underlying earnings per share increase to 57 cents, up from 53 cents
- FY26 earnings guidance lifted and narrowed to 60-70 cents per share
- 2025/26 Farmgate Milk Price forecast range tightened to NZD 9.60-9.80 per kgMS
- 2026/27 opening Farmgate Milk Price set at NZD 9.75 per kgMS amid geopolitical uncertainties
Profit Growth Masks Mainland Divestment Costs
Fonterra Co-operative Group (NZX:FCG) posted a solid third quarter with a total group operating profit of NZD 1.8 billion, a $103 million increase over the previous year. Yet, despite this headline growth, profit after tax edged slightly lower by NZD 6 million to NZD 1.076 billion. The drag came from divestment-related costs linked to the recent sale of Mainland Group, which also returned NZD 3.2 billion to shareholders and unit holders, marking a strategic pivot towards higher-value ingredients and foodservice sectors.
Underlying Earnings and Segment Performance
Stripping out Mainland’s results, underlying profit after tax rose by NZD 70 million to NZD 946 million, lifting earnings per share to 57 cents from 53 cents. The Ingredients division faced a $208 million profit decline, mainly due to higher protein costs expensed through core operations, despite strong in-market protein demand in the US and Europe supporting margins. Conversely, Foodservice surged with a 143% jump in underlying operating profit to NZD 516 million, driven by pricing, product mix improvements, and easing milkfat input costs.
Milk Production and Processing Capacity Expansion
Milk collections are running 4% ahead of last season at 1,489 million kgMS, boosted by favourable weather and record South Island pasture growth. Fonterra expects final season production to exceed forecasts by 510 million kgMS. To manage this, the co-op is prioritising manufacturing higher-value products late in the season and maintaining operational stability. Capital investment remains robust at NZD 612 million year to date, with projects underway including the $75 million Studholme protein hub, $35 million Edgecumbe pastry butter sheet capacity, $75 million butter expansion at Clandeboye, and a $150 million UHT cream plant at Edendale.
Earnings Guidance and Milk Price Forecasts
Reflecting confidence in contracted sales and supply chain resilience, Fonterra lifted and narrowed its FY26 underlying earnings guidance to 60-70 cents per share, up from 50-65 cents. The 2025/26 Farmgate Milk Price forecast range tightened to NZD 9.60-9.80 per kgMS, holding the midpoint at NZD 9.70. Looking ahead, the co-op set an opening 2026/27 Farmgate Milk Price forecast of NZD 9.75 per kgMS within a wider range of NZD 8.00-11.00, acknowledging geopolitical tensions and inflationary pressures that could widen outcome variability.
Organic Milk Expansion and Market Positioning
Fonterra is also expanding its organic milk business into New Zealand’s South Island, responding to strong farmer interest. The forecast Organic Milk Price for FY26 sits at a record midpoint of NZD 14.00 per kgMS, with a range of NZD 13.90-14.10, and the 2026/27 opening range is set at NZD 13.00-15.00 per kgMS. CEO Richard Allen emphasised the co-op’s strategy to focus on global B2B dairy markets and leverage strong customer partnerships to navigate ongoing supply chain and geopolitical challenges.
Bottom Line?
Fonterra’s upgraded earnings outlook and stable milk price forecasts highlight resilience amid supply chain and geopolitical headwinds, but the wide 2026/27 price range signals ongoing uncertainty for producers and investors.
Questions in the middle?
- How will ongoing geopolitical tensions, especially in the Middle East, impact Fonterra’s supply chain and input costs in the coming season?
- Will the capital investments in protein, butter, and cream capacity translate into sustained margin improvements amid volatile global dairy markets?
- How quickly can Fonterra’s organic milk expansion in the South Island scale to meaningfully contribute to earnings growth?