New Zealand dairy co-operative Fonterra remains on course to divest its consumer and associated businesses after posting a strong FY25 Q3 performance.
Fonterra generated after-tax profit of NZ $1,158m (US $693m), up 11% or NZ $119m, while operating profit rose NZ $1,740m (US$ 1,041m), up NZ $267m.
The co-op’s consumer division – which is up for sale and has attracted interest from the likes of Lactalis and Bega among others – grew its operating profit by 103% in FY25 Q3 to NZ $319 (+NZ $71m on FY24 Q3) on higher volumes and lower operating expenses. In particular, sales of packaged milk powders in South Asia and UHT milk in Greater China drove significant volume growth.
In comparison, the co-op’s ingredients business – which delivered the lion’s share of the group’s profit this quarter, at NZ $1,017m (+NZ $276m) – grew its operating profit by 17%; and foodservice contributed $396m (-$55m), a 12.2% decrease on last year.
Consumer’s improved performance this quarter won’t change Fonterra’s plan to consolidate into a B2B services business and offload the division.
Fonterra CEO Miles Hurrell said the divestment remains ‘on track’ with the co-op set to organize a farmer shareholder vote ‘in due course’.
“We have been thoroughly testing the terms and value of both a trade sale and initial public offering (IPO) as divestment options,” Hurrell said. “This work is on track as planned and we will seek farmer shareholder approval to divest through a vote in due course.
“Given the confidence we have in our strategy, we have strong conviction that a divestment is the right choice for the co-op and its owners.
“By focusing on our core strengths and the sales channels that deliver the highest returns, we have the confidence to target an average return on capital of 10-12%, which is above our 5-year average.”
Miles Hurrell, CEO, Fonterra
“This is alongside paying farmers the highest sustainable farmgate milk price, which we are always committed to.”
“If we divest our consumer business, we will still be a co-op with global reach and scale, and a diverse product mix sold to customers in more than 100 countries,” the chief executive added.
Key metrics, FY25 Q3
Profit after tax (normalized): NZ $1,158m
Operating profit: NZ $1,740m
Revenue: NZ $19,699m (+15.9%)
Earnings per share: 70c
Return on capital: 11.0%
Fonterra’s ingredients business (up NZ $276m) was the largest profit driver for the group, with higher margins more than offsetting a decline in sales volumes. Australia’s stable milk price was a key factor behind the favorable performance while the lower volumes were attributed to more milk solids being allocated to Fonterra’s higher-margin foodservice and consumer channels. In total, the ingredients division reported operating profit of NZ $1,017m, a 17% increase.
In foodservice, normalization followed after a record-setting performance a year ago, with operating profit slipping by NZ $55m to NZ $396m in the FY25 Q3; this was attributed to lower in-market margins due to input cost pressures, particularly within Fonterra’s Greater China UHT cream portfolio. (In Greater China, Fonterra’s operating profit from foodservice was down NZ $91m.) On the flip side, sales volumes climbed up 9.8% driven by demand for mozzarella, butter and cream.
Commenting on the co-op’s results this quarter, Hurrell highlighted ‘the scale and ongoing strength of our ingredients channel’ and said that the dairy major’s product mix optimization activities have driven profit.
“We are heading into year-end with a strong balance sheet and full-year debt metrics on track to be below the co-op’s target range.”
Miles Hurrell, CEO, Fonterra
“Our rolling 12-months return on capital is 11%, which is above our previous target for FY25 and within our long-term target range of 10-12%,” the chief executive explained.
“Our full-year forecast earnings range of 65-75 cents per share assumes flat earnings in Q4 of FY25 due to the seasonality of our milk collections, the higher input prices for our consumer and foodservice businesses, ongoing investment in our ERP system and an increase in costs associated with shaping the co-op post-divestment to execute our strategy.”
Fonterra’s year-end earnings range is at the upper end of the guidance provided in March, of 55-75 cents per share.
New season’s farmgate milk price
Also announced was the 2025/26 season opening forecast farmgate milk price, at NZ $10.00 per kgMS midpoint and NZ $8.00 - NZ $11.00 per kgMS range thanks to strong demand for milk price reference products, minimal new season production having been contracted, and heightened market volatility due to geopolitical tensions.
Australia's changing merger laws
Businesses interested in Fonterra's Mainland Group - which includes significant assets in Australia - have another reason to look at closing a deal soon: Australia's changing merger laws.
From January 1, 2026, the country is introducing a mandatory merger control process in a major policy shift designed to strengthen compliance and tackle unfair competition. Under the new regime, transactions that meet certain financial thresholds would require approval from the ACCC prior to completion irrespective of their effect on competition. For businesses, this would mean increased compliance costs and the need to prepare detailed documentation as standard.
Mergers that meet the following thresholds would be subject to mandatory ACCC approval:
- the combined Australian turnover of the merger parties (including the acquirer group) is at least AU $200 million (USD135 million); and either the Australian turnover is at least AU $50 million (USD33 million) for each of at least two of the merger parties; or if the global transaction value is at least AU $250 million (USD167 million); OR
- the acquirer group’s Australian turnover is at least AU $500 million (USD335 million); and either the Australian turnover is at least AU $10 million (USD6.5 million) for each of at least two of the merger parties; or if the global transaction value is at least AU $50 million (USD33 million). (Source: White & Case LLP)
The new law will also broaden the meaning of 'substantial' lessening of competition to encompass deals that may create, strengthen or entrench a particular business' power in the market - for example, in cases where a major company acquires a promising start-up.
And even when a merger is unlikely to meet the above-listed financial thresholds, the government may determine that certain classes of acquisitions from specific industries would require approval, too; with the alcohol, pathology, and oncology-radiology sectors set to be included in a separate piece of legislation.
Meanwhile, the current season’s price range was maintained at NZ $9.70 - NZ $10.30 per kgMS.
“Our forecast farmgate milk price for the current season is driven by strong demand for our milk price reference products and our range is unchanged at $9.70-$10.30 with a midpoint of $10.00 per kgMS,” Hurrell said.
Mainland Group: What’s next?
As reported in May 2025, Lactalis started an informal merger review process with the ACCC, Australia’s competition regulator, as the company seeks to acquire Fonterra’s for-sale assets. No deal has been formally signed between Fonterra and Lactalis yet, Reuters reported.
The informal review is designed to check if a merger is likely to substantially lessen competition. The process is voluntary and allows the regulator to highlight competition issues that could arise from a merger, and block or unwind it if its effects on competition would be ‘substantial’.
If a merger is likely to lessen competition, the ACCC may launch a public review - but most mergers in Australia are given the go-ahead following the informal process.
The regulator is set to publish its decision on the Lactalis filing on June 26.
Meanwhile, regional cheese major Bega has also openly expressed interest in forging a deal for Fonterra’s consumer arm.
Despite strong indications that a trade sale is now more likely, Fonterra has maintained that an IPO would be an option as the co-op seeks to secure the best ROI from the transaction.
Fonterra recently appointed industry veteran Anne Templeman-Jones as chair-elect of the audit and risk committee for the Mainland Group Board and held ‘investor roadshows’ earlier this year to present the for-sale business to investors across APAC and Oceania.