May 22, 2018 / 9:49 PM / a month ago

UPDATE 2-NZ's Fonterra says higher costs trim annual profit, dividend forecast

* Global dairy prices rose to 9-month high at auction last week

* Cuts EPS outlook to NZ$0.25-0.30 from NZ$0.35-0.45

* Cuts dividend forecast to NZ$0.15-0.20/shr from NZ$0.25-0.35/shr

* Fonterra Co-operative Group shares down 7 pct (Adds details from statement, background, share movement, CEO and analyst quotes)

By Aaron Saldanha

May 23 (Reuters) - New Zealand’s Fonterra Co-operative Group cut its full-year profit and dividend forecasts on Wednesday, sending its shares down 7 percent as the company takes longer to pass on higher milk costs to its customers.

Global dairy prices pushed by rising Chinese demand rose to a nine-month high at a fortnightly auction held last week. The Global Dairy Trade (GDT) Price Index fetched an average selling price of $3,637 per tonne, up 13.9 percent in the year to date.

“There is always a natural lag in being able to pass through an increase in our input costs,” Fonterra Chief Executive Theo Spierings said in a statement.

“But this increase has been both rapid and late in the year, making it difficult for these higher costs to flow through into our sales for this financial year,” he added.

Fonterra trimmed its guidance for full-year forecast normalised earnings to NZ$0.25-0.30 per share from NZ$0.35-0.45 per share. It also cut its full-year forecast dividend range to NZ$0.15-0.20 per share, from NZ$0.25-0.35 per share announced in March.

Fonterra shares, which fell to their lowest level in nearly two years on Wednesday, have lost 10 percent in the year to Tuesday against a 2.6 percent gain in the broader S&P/NZX 50 index.

“Demand for dairy products is relatively high, but there are only certain products that Fonterra can add value to and make profits,” said Grant Williamson, investment adviser at Hamilton Hindin Greene.

“Whereas, with demand for basic dairy products the main beneficiary is the farmer,” he said.

Fonterra said the opening farmgate milk price forecast for the 2018-19 season was NZ$7 per kilogram of milk solids (kgMS), 3.7 percent higher than the current season’s revised estimate.

The company expected demand to remain strong, especially from China and for butter and anhydrous milk fat.

Fonterra raised its farmgate milk price forecast for the current season by 3.1 percent to NZ$6.75 ($4.68) kgMS.

The company’s milk collections in New Zealand during the 2018-19 season were estimated at 1.53 billion kgMS. ($1 = 1.4428 New Zealand dollars) (Reporting by Aaron Saldanha Additional reporting by Sumeet Gaikwad in Bengaluru Writing by Sayantani Ghosh Editing by Tom Brown and Darren Schuettler)

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