Investment research house Morningstar says it is «dramatically» reducing its Fonterra 2014 earnings-per-share forecast from 47 cents a share to 34c.
However, in a research note, it said it had kept the fair value of units in the New Zealand dairy company’s shares unchanged at $6.50 per share.
Morningstar analyst Nachiket Moghe said Fonterra’s 2013 financial results were disappointing.
While earnings per share at 46.5c was in line with the company’s guidance of between 45c and 50c a share, underlying earnings before interest and tax (Ebit) of $1 billion was 7.5 per cent below the November prospectus forecast.
Higher commodity milk powder prices and margin compression in Australasia were the main culprits.
«The firm is likely to realise $65m in cost savings in fiscal 2014 through its various cost-cutting initiatives,» he said.
«However this will be more than offset by an adverse product mix due to a surge in milk product prices, continued margin pressure in the Australasian division, and brand building and distribution expenses in China.»
As a result Morningstar was reducing its 2014 earnings-per-share forecast.
It had left its share fair value unchanged because it was retaining longer-term projections, which factored in lower milk powder prices and therefore higher margins on value-added products such as cheese and casein.
«We continue to believe that Fonterra does not possess an economic moat given that it does not have pricing power and returns on invested capital are low,» Morningstar said.
Source: Stuff
