Fonterra’s profit has more than doubled on the back of its Mainland brands sale, and the dairy co-operative says it will spend another $1 billion over three years building protein plants in the South Island.
In its full-year result released to the NZX on Thursday 24 September, Fonterra reported a group profit after tax of $2.6 billion for the year to 31 July 2026, up 142% on the year before. Operating profit rose 97.6% to $3.4 billion. Revenue came in at $27 billion. The co-operative says total cash returns to farmer owners and unit holders reached $19.6 billion, counting milk payments, dividends and the capital return paid out after the Mainland sale.
Much of the headline jump is a one-off. The group operating profit includes a $1.2 billion gain on the sale of Mainland Group, the consumer business behind the Anchor and Mainland brands, which was completed in March. Stripping that out and treating the business as if Mainland had already gone for the whole year, Fonterra says its underlying operating profit was $1.8 billion, up 23.6%, and underlying earnings were 71 cents per share, up 17 cents. Return on capital lifted to 14.2% from 11.7%, above the co-operative’s own target range of 10 to 12%.
That underlying number matters because a year ago Fonterra told farmers that if it sold its consumer arm, earnings would recover to 2025 levels within three years. Chief executive Richard Allen said the co-operative had got there in one. “I’m pleased to share that our team’s focused execution of strategy in FY26 has got us to that target already, with underlying operating profit for our continuing business of $1.8 billion and profit after tax of $1.2 billion, equivalent to 71 cents per share,” he said in the NZX announcement. Having hit the target, Fonterra says it will stop reporting against it and go back to giving an earnings forecast for each financial year.
For farmers, the final milk price for the season that ended on 31 May was confirmed at $9.69 per kilogram of milk solids. That is below the $10.16 paid for the previous season, according to Fonterra’s Farmgate Milk Price Statement, but more milk was collected. The statement shows collections rose to 1,575 million kilograms of milk solids from 1,509 million, so the total paid out for milk was $15.259 billion, only slightly less than the $15.336 billion paid the year before.
Shareholders also get a final dividend of 33 cents a share, fully imputed. With the 24 cent interim dividend and the 16 cent special Mainland dividend paid in April, that takes the total for the year to 73 cents, up from 57 cents. The distribution notice puts the record date at 1 October and payment on 15 October, with about $530 million going out.
The business units that are left after the Mainland sale did the heavy lifting. The Ingredients business, which sells milk powders, proteins and other dairy components to food makers around the world, earned $1,293 million in operating profit. Foodservice, which supplies restaurants, bakeries and cafés, earned $547 million. Mr Allen put the Ingredients result down to strong global demand for protein, good pricing and product mix choices, and said Foodservice grew on volume and price across all categories and markets.
“FY26 was a year of delivery. Our teams collected, processed and shipped near record volumes of milk, allocated products for the highest possible returns, and reliably delivered them to our customers right around the world,” Mr Allen said.
The biggest piece of new information in the result is where the money goes next. Fonterra says it will invest an extra $1 billion over the next three years in the South Island, expanding its protein manufacturing and improving its environmental performance on water and emissions. It says the aim is to move more milk out of whole milk powder and other commodities and into higher-value products. The co-operative expects the new capacity to be running in 2029 and to create around 50 to 60 permanent jobs, plus construction work for local firms. It did not name the sites in the announcement.
That spending will come partly from capital kept back from the Mainland sale. Fonterra now expects its total capital investment to run at about $1.3 billion to $1.6 billion a year for the next three years. It spent $1 billion on sustainability and growth projects in the year just finished, and says its replacement business software system is on track and on budget, with five sites live and two more due later this year.
Chairman Peter McBride said the result landed at the top end of the co-operative’s earnings guidance. “Consistency is important to farmers and our shareholders. We’re proud of the collective effort that’s delivered another strong result, at the top end of our earnings guidance,” he said.
The annual report also shows what the change at the top cost. Miles Hurrell, who resigned as chief executive in March and handed over to Mr Allen on 1 May, received total remuneration of $8,158,782 in the 2026 financial year, according to the annual report. That was made up of $1,915,848 in salary, $254,624 in benefits, a $2,503,396 short-term incentive for the 2025 year and a $3,484,914 long-term incentive payment, the last deferred instalment of a 2022 share scheme. RNZ reported the figure earlier on Thursday. Mr Allen’s remuneration for his three months as chief executive to 31 July was $998,620, most of it salary and an incentive earned but not yet paid.
Looking to the season now under way, Fonterra kept its forecast milk price at $9.50 per kilogram of milk solids, within a range of $8.50 to $10.50. That is the figure it lifted by 25 cents on 21 September after a run of firmer Global Dairy Trade auctions. It expects to collect just over 1.6 billion kilograms of milk solids this season and is forecasting underlying earnings of 65 to 85 cents per share for the 2027 financial year. The organic milk price, a record $14.13 last season, is forecast at $14.30.
Mr Allen flagged the weather as a risk. “Looking ahead, we’re planning for another season of strong milk supply. However, we are also well prepared for an El Niño weather pattern should this eventuate,” he said. An El Niño pattern can bring drier conditions to the east of both islands, which cuts grass growth and milk output. The co-operative added that with only two months of the season complete, things can always change.
For the wider economy, dairy remains New Zealand’s biggest export earner, and a milk price in the $9 to $10 range keeps money flowing into rural towns even as petrol and other costs climb. The question for farmers is whether the South Island protein push pays off in a higher milk price down the track, or mainly shows up in the dividend.
Are you a dairy farmer or Fonterra shareholder? Do you think the $1 billion South Island investment is the right use of the Mainland money, or should more of it have come back to farmers? Share your view in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
Leave a Reply