RTDs and protein yogurts boost Fonterra as billion‑dollar payout nears

Summary

• Protein and cheese drive Fonterra’s HY26 earnings, with strong global demand for high‑value dairy ingredients.
• Foodservice and advanced ingredients become strategic priorities, supported by new manufacturing capacity in cream, butter and proteins.
• NZ$3.9bn Mainland payout set for mid‑April, following regulatory approval of the NZ$4.22bn sale to Lactalis.
• Middle East tensions pose downside risk, with shipping delays and cost pressures potentially affecting late‑year performance.

Fonterra is sharpening its B2B focus as it closes in on a billion-dollar payout from its megadeal with Lactalis.

The co-op’s ingredients and foodservice arms continued to flex muscle as the dairy major achieved strong earnings and cut its net debt in the first six months of the fiscal year.

Despite being challenged by high milk collections – including record-breaking milk production in the South Island – Fonterra allocated milk solids to high-returning products, such as protein and cheese.

Demand for protein came from food and beverage manufacturers, particularly in categories such as US RTD drinks (which achieved a 10% annual growth rate) and yogurts with 20g+ protein (up 65% year over year). These trend dynamics are also emerging in Europe, said the co-op, highlight a significant runway for growth ahead.

Cheese was another ‘standout’ performer in the period as demand for grass-fed dairy grew across all regions, the co-op reported.

Still, Fonterra’s Ingredients division saw profits drop in the period due to higher input costs, even if in-market performance was favourable.

In Foodservice, the co-op began to simplify and integrate its Greater China business – where it continues to operate in both consumer and B2B – as the division matched last year’s in-market performance and benefitted from higher profit allocation from Core Operations.

Overall, the New Zealand dairy co-op posted stronger earnings, including a bump in profit, revenue and earnings per share while its net debt plummeted in double digits in the first six months of FY26.

Mainland Group payout nears

Outgoing CEO Miles Hurrell announced shareholders will be paid out in cash for Mainland Group’s sale on 14 April.

The NZ$4.22bn transaction was approved by regulators and completes at the end of March.

Shareholders will receive NZ$3.9bn in cash, combining the NZ$2.00 per‑share capital return with the 24‑cent interim dividend and 16‑cent special Mainland dividend.

Middle East tensions raise doubts over year-end performance

With New Zealand a major dairy exporter to the Gulf, the ongoing conflict between Iran, Israel and the US raised investor questions during Fonterra’s interim call this week.

Hurrell addressed key concerns but warned a prolonged conflict could impact performance towards year-end.

“At the moment, we’ve got product flowing up, which is good,” Hurrell told investors. “Obviously, [there is] a bit of shipping delays and there are additional shipping costs that are coming in. If I look at it in terms of cost, we are well-hedged in those positions. We won’t see an impact of that at least through until the last quarter, I would expect.

“The relationship that we have with [shipping major] Kotahi is allowing us to get product up into the right space. We’re pretty much hitting the right ports at this point in time, although there’s a little bit more land transport in those Gulf countries. If I look at it from that perspective, yeah, it’s actually not too impactful at the moment.”

He added that the co-op retains ‘a bit of conservatism’ in its earnings range for the back half of FY26 “to take account of the fact that if this goes on for a little bit longer, then it’s going to start having knock-on effects”.

Still, the co-op has kept the top-end of its earnings range unchanged as the leadership expects strong sales in the second half and strong milk collections (forecast up 4%).

Looking ahead, the chief executive said the focus is shifting firmly to Foodservice and advanced ingredients, noting that Fonterra is expanding its manufacturing footprint in UHT cream, butter and pastry butter sheets, while its new protein ingredients plant at Studholme is now capable of trial production runs.

“Our focus now is firmly on our strategy to grow value for farmers as a global B2B dairy nutrition provider, working closely with customers through our high-performing Ingredients and Foodservice channels,” Hurrell said.

“We are focused on maximising value from farmers’ milk and are building new manufacturing capacity across several New Zealand sites to help meet growing demand for our high-value proteins, butters and creams.”