Generate's Investment Specialist Greg Smith joined Mike Hosking on ZB again this morning to provide his views on a super strong result from Fonterra, which featured a very strong milk price and higher dividend. Attention now turns to pushing the appetite for the sale of the consumer business to farmers on the roadshows over the coming weeks. Greg also discusses a big data dump in the US, with GDP, durable goods, new housing and jobless figures all pointing to strength in the world’s largest economy.
Listen to the 26 September 2025 recording from The Mike Hosking Breakfast on Newstalk ZB here:
Or read the transcript below:
From Generate, Greg Smith, morning to you.
Morning to you Mike.
How about them milk numbers?
Super strong result from Fonterra. So total revenue up 15 percent, 26 billion. Underlying profit that went from 1.57 to 1.7 billion in the co-op shares they raised 1.7%.
Investors appreciated that I think they're able to give a strong dividend as well as a high milk payout which has struggled with a little bit in the past. So the co-op shares are up around about 60% year to date as are those in the Fonterra Shareholder funds. So ingredients business that it was a standout performer. Sales to greater China going really well, high value products, think butter, mozzarella, UHT cream. Look at the earnings that was 65 to 75 cents. The forecast for the current year was 45 to 65 cents.
Let's talk the milk price. So currencies in $10.16, compare that to the year before 7 bucks 83. So along with a dividend of $0.57 that's going to put about $16 billion into farmers’ pockets. It's pretty nice.
Next year's range, 9 bucks to $11. Actually spoke to the company yesterday. We've had those soft dairy auctions of light. They said demand’s still very, very strong. It's just there's a lot of supply out there in New Zealand and also South America. One of the strongest years on record for shareholder returns. They're looking to invest up to a billion in the next three to four years in lots of different projects, including value to milk fat for new butter and cream cheese investments.
Now next week’s interesting Mike normally they’d be on the road talking to results, which they will be. But I guess the bigger thing I'll be talking about in pitching is the sale, the Mainland consumer business. So obviously 4.2 billion, one of the biggest sales and corporate history. They're looking to double down on what they do best and remove some of the challenges of a seasonal supply curve for that fast-moving goods dairy business. So they I thought the interesting thing you say was they reckon they can get earnings to the current level post the asset sale within three years.
So $2 a share going to farmers tax-free, that's a huge carrot and yeah fun fact the average Fonterra of farmers, around about 9000 of them, will get about $360,000. So could be some nice trickle down effects.
And that is why it is a foregone conclusion. These American numbers, I can't find the GDP, the spend, they're all good, aren't they?
It’s all good. Yeah, huge data dump overnight and it is all strong. So the economy grew 3.8% in the second quarter. That's the fastest pace in nearly two years. That was revised up from 3.3%. Obviously we had that contraction in the first quarter ahead of Trump's tariffs. So there's been lots of swings in trade inventories.
So if you strip that out and look at final sales to private domestic purchases, that was up a full percentage point, 2.9%. Consumer spending going well, that's spending on transportation, financial services, insurance. That was 2.5 percent consumer spending growth. Corporate profits, that was a little bit less, up just .2%. Basically tells us, Mike, that companies are shielding consumers from price hikes due to tariffs.
Hey, but they're still investing. Business investments, 7.3%. Highest, sharpest horizon spending on IP products since 1999 and the impact of AI. This is what we're seeing here. So investment of data centres , a fresh record $40 billion on an annualised basis and everything's going pretty well, Mike.
So durable goods, so long-lasting goods orders, they showed up 2.9% after falling in July, falling 9% in June. So huge bounce back there. Transportation equipment again, orders for defence, aircraft and parts up 50% and then talking of bouncing back, housing market that's been in a bit of a slump. Sales and new family, new single-family homes, they are 20 percent, 800,000 and it's also 15% higher than a year ago and 20% higher in July. And labour market that's also picking up jobs claims they fell to the lowest level since mid July, 218,000. So no surprise, Mike, the odds of a Fed rate cut next month we're over 90%, they're now pared back to 80%. So there's going to be a lot of folks on tonight's inflation numbers.
Speaking numbers, give them to me.
Yeah. So what have we got? So the S&P, that's down .7%, 6590. Dow down .7% as well. 45823. Nasdaq down 1.1 percent. 22247. Amazon down 1% on that news around the fine. Footsie 100 down .4 percent. 9213. Nikkei up .3%. ASX 200 up .1 percent, 8772. NZ X50, despite Fonterra we were lower down .2 percent, 3153. Gold up 3 dollars, 3771 an ounce. Oil down 15 cents, 64.84.
In the currencies against the US dollar, we are weaker almost by one percent. 57.6. That A dollar 88.26, that's down a touch as well. British pound 43.2, that's down .1%. And the Japanese yen 86.3, that's down .3%. We've got those inflation numbers tonight in the US and we've also got some consumer confidence in New Zealand today.
Have a fantastic weekend, mate catch up next week. Greg Smith at Generate, KiwiSaver and Wealth Specialists.