Shares in Arla Foods UK increased by 1.47% to 52.51 pence at noon today (27 September) after the company forecast a significantly improved second half performance in its pre-close trading statement.

Arla said that trading had been in line with expectations since the sale of its middle ground and doorstep delivery business to Dairy Crest. The company added that it expects the second half performance to represent a significant improvement on the first half of the year.

Arla said that its brands have performed strongly, with sales of Lurpak spread increasing by 8% over last year’s levels while sales of Anchor were up 5% year-on-year. Branded growth was driven by an investment in marketing which is expected to continue in 2007, Arla said.

Supermarket milk volumes increased by 6% overall, with the volume of organic milk sold to supermarkets up 25%. However, total milk sales remained flat. “Although fresh milk volumes to our three major supermarket customers are ahead by more than 6% in a generally flat market, which was temporarily affected by the hot weather in July, total fresh milk sales including those to middle ground retailers are similar to the previous year,” the company said in its pre-close trading update.

Arla said that increasing production costs, primarily higher utility bills and packaging prices, were offset by pricing initiatives and reduced operating costs, the result of the company’s restructuring effort. 

The dairy group will announce preliminary results on 23 November. 

Following the release, Panmure Gordon upgraded Arla stock from hold to buy with a 62 pence target price. Panmure observed that Arla shares are trading at a substantial discount to the company’s peers. Analysts said that the manufacturing restructuring has been completed and that the company is beginning to see the benefits.