Units in the Fonterra Shareholders' Fund dropped as much as 3.75% yesterday after Fonterra signalled earnings for the 2013 financial year would be lower than forecast.
The dairy co-operative's forecast normalised ebit (earnings before interest, tax and other non-recurring items) was likely to be about $1 billion, instead of the forecast $1.079 billion stated in the fund prospectus.
Fonterra attributed the lower figure to the widespread drought in New Zealand and the reshaping of its Australian business.
Trading opened at $7.48 yesterday and reached a low of $7.20, before closing at $7.28.
In a statement, the co-operative said the forecast cash payout to farmer shareholders of $6.12 remained unchanged.
The current earnings per share guidance range of 45c-50c a share had been reconfirmed, although it was now likely to be at the lower end of the range, while the prospective annual dividend per share of 32c remained the same.
Chief executive Theo Spierings said the drought had contributed to a 64% rise in whole milk powder prices on the GlobalDairyTrade platform since early 2013 and that had a temporary but significant negative impact on New Zealand Milk Products' margins.
At the same time, the co-operative's Australian business remained under pressure.
Although a recovery plan was being implemented, it was in the early stages and would not counteract the impact on earnings of ''intense'' competition and the accelerated reshaping of its business.
The revised ebit figure was subject to continued volatility in dairy prices, foreign exchange and other market uncertainties that might occur in the final month of the financial year, Mr Spierings said.
Forsyth Barr broker Peter Young said the key driver of the downgrade appeared temporary rather than structural but highlighted the element of unknown risk that should be attached to the shareholders fund.
While farmers would be relieved that Fonterra had reconfirmed the forecast cash payout would remain unchanged, the reality of the announcement was that everything had a flow-on effect, Federated Farmers dairy vice-chairman Andrew Hoggard said.
''All those people who have looked at the increased prices on the GlobalDairyTrade platform and then decided to buy more Fonterra units on the stock exchange may not have understood how it all works.
''Increases in GDT prices actually mean tighter margins, as the base commodities that Fonterra uses to make its own products also rise in price.
"You can see by this announcement it wasn't a benefit to investors, as the higher GDT actually means less profit,'' Mr Hoggard said.
