February 16, 2012

Amidst passing through higher costs for milk and other raw food products, Dean Foods Co. (DF) said its fourth-quarter earnings improved.

The biggest US dairy processor and distributor by revenue reported earnings of US$0.27 a share, after accounting for a flurry of one-time charges. The company essentially earned more money while selling a similar volume of products as compared to a year ago.

Dean Foods' sales volumes of commodity products like generic milk and dairy products were generally flat. Volumes of other products, like International Delights coffee creamers and Silk non-dairy beverages, were higher. Revenue increased 4.5% to US$3.3 billion, while operating profit was up 11%.

The higher revenues helped the company cover surging costs for commodity products, especially raw milk. Dean Foods said prices for raw milk were up 10% compared to the same quarter a year ago.

Shares surged 9% to US$11.87 a share in pre-market trading. Investors have been hoping that Dean Foods, saddled for quarters with high commodity costs and challenges to its corporate structure, will harness its dominant position in the dairy business and return to profitability.

The biggest US dairy processor and distributor by revenue has struggled in recent quarters as a weak US economy and higher prices contributed to soft sales, even as costs for raw products from dairy farmers jumped. The company has sold or closed facilities, due in part to legal anti-trust challenges by regulators. Dean Foods has also faced heavy competition from private-label brands as grocers discounted milk to lure consumers into their stores.

The company's quarterly results continued to reflect its underlying challenges. One-time charges, including goodwill impairments and corporate costs, were about US$200 million, translating to an actual loss ofUS$0.05 a share. For the full year, Dean recorded US$2.1 billion in goodwill write-downs, which basically matches its current market capitalisation of around US$2 billion.

The company issued brighter forecasts for results in 2012, when it expects to turn in full-year earnings of US$0.87 to US$0.95 a share, which would mark an increase of 13% to 24% compared to 2011. Dean said it expects first-quarter earnings this year to be US$0.18 to US$0.23 cents a share.

Dean Foods' gross margin fell to 23.3% from 24%. The Fresh Dairy Direct segment, the company's largest business, posted 4% sales growth as the company passed through higher commodities costs. Sales volume was flat after excluding a September divestiture.

At the WhiteWave-Alpro segment, which includes ice cream, yogurt and organic products, sales were up 6%, due to growth in creamers and plant-based beverages. At its Morningstar business, sales improved 7%.