August 13, 2013

 

In the face of increasing competition and falling volumes, Dean Foods Co would speed up the closure of up to 15% of its factories, as it reported a quarterly loss and warned of more tough times ahead.

 

Shares of Dallas-based Dean, known for its Meadow Gold and Dean's milk, fell as much as 9% after it said that the current quarter would be the most challenging this year.

 

Dean lost a large Wal-Mart Stores contract earlier this year and an analyst warned that price pressure from retailers and competitors will not go away anytime soon.

 

"Commodity costs remain volatile and competitive pressures are quite intense and shows no sign of easing," Erin Lash of Morningstar Inc told Reuters.

 

The company, which has divested many of its own food brands to focus on milk, lost a "significant" amount of business from Wal-Mart to a cheaper rival, although it still sells milk to the chain. It said in February that the contract loss would lead to a small decline in 2013 milk volumes but the situation has since grown worse.

 

Chief Executive Gregg Tanner said on Thursday (Aug 8) the fluid milk category volume this year will likely be a bit softer than the company had previously anticipated.

 

The company said it planned to close eight to 12 of its factories by the middle of next year. Dean Foods reported a net loss of US$56.9 million, or US$0.30/share, on an attributable basis for the quarter ended June, compared with a profit of US$56.2 million, or US$0.3/share, a year earlier.

 

On an adjusted basis, it earned US$0.13/share from continuing operations. Analysts on average were expecting a profit of US$0.14/share on revenue of US$2.25 billion. Dean forecast a third-quarter adjusted profit between US$0.05 and US$0.08/share, below the average estimate from analysts of US$0.11/share. The company said it now expects full-year adjusted earnings between US$0.47 and US$0.53/share.

 

Dean Foods' fluid milk volumes fell 6% in the quarter, a sharper fall than the 2.1% fall across the industry. It said its share of US fluid milk sales volume declined to 36.4% during the second quarter from 37.8% in the first quarter of 2013. Revenue was flat at US$2.2 billion.

 

Dean Foods sold Morningstar, which sells coffee creamers, ice cream mixes and other dairy products, to Canadian dairy products maker Saputo Inc in January.

 

The company last month divested of the last of its stake in WhiteWave Foods Co, which owns brands such as Silk soy milk, International Delight and Land O Lakes coffee creamers.

 

Shares in the slimmed down company, which has dropped out of the S&P 500 Index, traded as low as US$10.01 on the New York Stock Exchange on Thursday. They recovered a little to US$10.08 by lunchtime on Thursday but it is still a sharp fall for a stock that had risen as much as 25% this year.

 

Dean Foods is the largest processor and distributor of milk in the country. It says it is about five times the size of its next largest competitor.