Dean Foods Q4 profits down 24%

US retailers are squeezing dairy producers in an effort to raise prices, causing Dean Foods' profits during its fourth quarter to drop 24%.

The fourth quarter result was disappointing and had fallen short of expectations, said Greg Engles, chief executive of Dean Foods.

Engles said retailers are "wearying" of food deflation, and accepting a lower share of the margin compression caused by falling milk prices last year. He said the push from retailers was most evident in the latter half of the fourth quarter, but milk prices are expected to continue in their current range and allow the company to improve earnings year-on-year later in 2010.

However, oversupply in the industry remained a potential threat because of new artificial insemination techniques that can guarantee calves as potential milk producers, said Engles.

Dean Foods reported a fourth quarter profit of US$50.3 million, down from US$66.4 million a year earlier. Revenue decreased 3.2% to US$3 billion, beating analysts' estimation of US$2.95 billion. The decline was mostly due to lower prices amid lower overall dairy commodity costs.

The dairy segment, Dean Foods' largest business that primarily consists of conventional dairy operations, reported a 12% earnings decline on higher commodity costs and consumers trading down to less expensive items. Revenue fell 6%, though milk volume was up 4.6%.