May 22, 2019 / 9:31 PM / a year ago

UPDATE 1-Fonterra cuts guidance, shuts plant in 'new norm' for Australian dairy

(Adds context, outlook, details on facility closure)

May 23 (Reuters) - New Zealand’s Fonterra on Thursday cut its annual earnings guidance and said it would close a more than 100-year-old facility in Australia as dry weather and increased costs continued to undermine the dairy producer’s operations.

The move marks yet another earnings cut for Fonterra, which has been struggling to cut costs and curb debt as its key operations in Australia and New Zealand continue to be battered by harsh weather conditions.

The world’s largest dairy producer now expects earnings per share for fiscal 2019 in the range of 10-15 New Zealand cents, lower than its earlier guidance of 15-25 New Zealand cents.

The company will also close its Dennington factory in Australia due to a recent plunge in milk collections warranting lower production capacity, it said in a statement. Fonterra currently employs about 98 people at the facility, who will likely be let go.

“This is not a one-off for this season, it’s the new norm for the Australian dairy industry and we need to adapt,” Chief Executive Miles Hurrell said. “Dennington is over 100 years old and not viable in a low milk-pool environment.”

The company also forecast a farmgate milk price range of NZ$6.25-NZ$7.25 per kilogram of milk solids for the 2019/2020 season, which begins in June.

Earlier this month, the company had reported a large drop in milk collections, but had noted that demand for its products across Asia still remained solid. Fonterra had also hived off its Tip Top ice cream business for about $250 million, as part of a broader strategic review.

The company also said on Thursday it was commencing a strategic review of two Chinese farm hubs, and was reviewing options for a possible sale of its stake in a Brazilian venture with Nestle. (Reporting by Ambar Warrick in Bengaluru Editing by James Dalgleish)

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