Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, raised its earnings forecast and maintained its expected farmer payment as cost-cutting measures including redundancies bolster its bottom line.

Fonterra lifted its earnings estimate for the year ending July 31, 2016, to 45-55 NZ cents per share from 40-50 cents, and forecast an annual dividend of 35-40 cents. It still expects to pay farmers NZ$4.60 ($3.01) per kilogram of milksolids this season, up from NZ$4.40 last season, the Auckland-based company said in a statement Monday.

Fonterra has announced hundreds of job cuts this year as it seeks cost savings amid a global slump in dairy prices. It said today its financial performance is “well ahead of last year” and it is hitting targets on gross margins, and operating and capital expenses.

“While it is tough on farm due to low global milk prices, farmers will welcome the ongoing improvement in Fonterra’s performance delivering increased returns,” Chairman John Wilson said.

Shares Gain

Shares in the Fonterra Shareholders Fund, which tracks the cooperative’s earnings and dividends, rose 8 cents, or 1.5 percent, to NZ$5.47 at 11:26 a.m. in Wellington.

Fonterra said measures to improve efficiency and reduce costs, including 835 job cuts, are expected to deliver recurring cash benefits of NZ$340 million and contribute to both earnings and the farmer payout in the current financial year. In addition, it expects to generate a one-time cash benefit of NZ$440 million, which will contribute to working capital and its balance sheet.

Chief Executive Officer Theo Spierings reiterated that Fonterra’s NZ$4.60 payout forecast assumes a whole milk powder price of $3,000 per metric ton at GlobalDairyTrade auctions. The price fell to $2,453 at the Nov. 3 auction.

There’s “an expectation that prices will move up through the first half of 2016,” Wilson said on a conference call today. “We certainly expect it to start moving up over the coming months.”

Source – Agweb