Fonterra has warned that its 2013 earnings will be around 7.3 per cent lower than the forecast due to the competitive retail environment in Australia and drought in New Zealand.
The company's chief executive, Theo Spierings, said the combined effect of the two would see Fonterra's earnings before interest and taxes (EBIT) for the year ending 31 July 2013 now come in at around $1 billion, instead of the $1.079 billion previously forecast.
The Australian business remained under pressure, according to Spierings.
“Although a recovery plan is being implemented, it is in its early stages and will not counteract the impact on earnings of intense competition and the accelerated reshaping of our business. The reshape programme has resulted in a number of additional write-offs,” he said.
Spierings also pointed to unprecedented volatility caused by the extreme drought in New Zealand earlier this year as impacting its EBIT. He said the drought has contributed to a 64 per cent rise in whole milk powder prices on the global dairy market since early 2013, and this had had a temporary, but significant, negative impact on margins.
In March, when announcing its first half result, Fonterra cautioned that the second half was likely to be more challenging, particularly in Australia.
The local recovery plan includes the closure of Fonterra's Cororooke site in Victoria, continuing rationalisation of the brands portfolio, and cost reductions following a recent restructure of the business.
Fonterra will report its 2013 financial results on 25 September 2013.
Fonterra's Australian operations to weigh on the company's full year results.
