Dean Foods Begins Milking Its Options In Q3

By Sam Lewis

Despite profits, milk processor expects continued challenges in 2014

The largest processor and distributor of milk in the U.S., Dean Foods, released its 2013 third-quarter earnings statement on Tuesday Nov 5. Despite net income rising for the quarter, the company believes slacking demand for milk in the U.S. will lead to more plant closures in the future.

During the third-quarter ending Sept 30, Dean Foods is reporting net income of $415.1 million, or $4.35 per share. This is a dramatic increase from 2012’s third-quarter net income of $36.4 million, or 39 cents per share. At first glance, it appears that Dean Foods is a company growing profitable very quickly. However, the results are skewed by a $415.8 million gain coming from the shedding of its organic and soy business, WhiteWave Foods. Excluding that gain, earnings came in at 12 cents per share. Revenue for the company was down more than one and a half percent versus 2012, coming in at $2.2 billion.

The company has also cut its full-year earnings guidance to 85 to 91 cents per share, significantly down from its original projection of 94 cents to $1.06 per share. "We think our third quarter was our low point," CEO Gregg Tanner told analysts in Tuesday’s conference call. “The dairy commodity environment looks more challenging than previously expected.”

Dean Foods has struggled with elevated milk prices and a tough market due to competition with private-label milk companies offering lower prices. The company faces the enormous challenge of slumping milk demand. As milk consumption per-capita continues to decline year-in and year-out — in the third-quarter of 2013 milk sales volume at Dean Foods dropped to 34.9 percent, from 36.4 percent in the second-quarter — the company must figure out a way to remain relevant amongst company’s capitalizing on the popularity of soft drinks, juices, and flavored waters.

Deans has started its plan to close eight production plants, allowing for expenses to be cut. “We’ve closed seven of the eight so far and we anticipate there will be additional announcements coming,” says Tanner. The ultimate goal of closing plants is to save $120 million annually, which Dean Foods says it is making solid progress in doing so. The company is also planning to streamline its distribution network as an additional cost cutting measure.

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