August 9, 2018 / 3:53 AM / in a month

UPDATE 1-NZ's Fonterra reviews earnings guidance after trading halt

* Fonterra requests trading halt

* Fonterra says it may need to amend earnings guidance (Adds quote from analyst, details on potential impacts, background)

By Colin Packham

SYDNEY, Aug 9 (Reuters) - New Zealand’s Fonterra Co-operative Group Ltd , the world’s largest dairy exporter, on Thursday sparked concerns it could downgrade its earnings guidance after it requested a trading halt pending a possible update.

If Fonterra cuts its earnings guidance, as analysts expect, New Zealand’s second-largest company will have trimmed its outlook twice in three months as it struggles with tight local supply and a competitive global processing sector.

“Fonterra has had to pay a high price to their farmers to source milk which has raised costs for their processing business,” said Michael Harvey, a dairy analyst at Rabobank.

“There is very strong competition in that retail space, which has squeezed their margins.”

Fonterra put its shares in a trading halt and said it expects to notify the market by close of business on Friday on any guidance revision.

Any downgrade could put pressure on the New Zealand dollar as the dairy sector is an economic pillar for the Pacific nation, generating more than 7 percent of gross domestic product.

The New Zealand dollar hit a more than two-year low on Thursday.

In May, Fonterra trimmed its guidance for full-year forecast normalised earnings to NZ$0.25-0.30 ($0.17-$0.23) 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.

That revision came just two months after Fonterra posted a half-year loss, with a large writedown on its stake in Chinese infant formula producer, Beingmate. ($1 = 1.4990 New Zealand dollars) (Reporting by Colin Packham in Sydney Reporting by Aditya Soni in Bengaluru; Editing by Stephen Coates)

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