Fonterra announced on Wednesday plans to cut 300 jobs to save up to $65 million a year. The announcement saw the shares rise to above $8, up 46% on November's issue price. They last traded at $8.02.
Broker Peter Young said he had previously expected Fonterra to generate efficiency and productivity improvements in excess of the $60 million cost savings already flagged, but he had not expected a programme of that scale.
The $65 million in cost savings would be generated by the likely redundancy of 250 employees as 50 of the 300 roles were not currently filled.
''Simplistically, this equates to a staggering $260,000 saving per employee.''
Fonterra said it would reinvest ''most'' of the cost benefits into growth strategies, particularly in Asia. That should result in a short-term benefit to New Zealand Milk Products (NZMP), Mr Young said.
The growth strategies meant a more aggressive roll-out of strategy in China and other Asian countries of its food service and consumer brands.
Investors could expect higher levels of advertising and promotional investment which would likely suppress near-term margins but drive medium-term growth.
The overnight GlobalDairyTrade auction highlighted a partial reversal of some recent price moves, he said.
Overall prices fell 7%, removing some pressure on the farmgate milk price and Fonterra's input costs.
In addition, the relative prices between powders and non-reference commodity prices, such as cheese and casein, were favourable to Fonterra.
Fonterra reported a profit of $87 million in the first half for that product mix, reflecting the additional profit it was able to generate by changing its product mix to maximise the benefit of differing product prices, Mr Young said.
''While we expect a material part of the $87 million to reverse in the second half, as relative prices are less favourable, further price moves to those overnight will create upside risks to our forecasts.''
Forsyth Barr had lifted its price target from $6.50 a share to $7.30 a share.
That reflected the benefits of the $65 million NZMP cost savings and an additional $10 million-$20 million of savings in its Australia, New Zealand and Asian offices, he said.
