REFILE-UPDATE 3-Dean Foods outlook disappoints, shares fall

Mon Nov 2, 2009 4:13pm EST

(Refiles to eliminate extraneous word "million", paragraph 7)

* EPS ex-items 34 cents; Wall Street view 33 cents

* Net sales fall 13 pct to $2.77 bln, missing estimates

* Sees 2009 EPS $1.63 ex-items; Wall St view $1.66

* Sees dairy prices showing an upward trend next year

* Shares down nearly 9 pct (Recasts; adds forecast details, share move; previous dateline NEW YORK)

CHICAGO, Nov 2 (Reuters) - Top U.S. dairy company Dean Foods Co (DF.N) raised its earnings forecast but disappointed investors who had expected an even biggest boost from lower raw milk prices, sending its shares down nearly 9 percent.

The forecast came even as the company reported higher-than-expected third-quarter profit on Monday, helped by lower costs for fuel, raw milk and packaging.

Dean, which sells dairy products under its own name as well as Horizon organic milk, said raw milk prices started to rise near the end of the third quarter and were continuing to move higher.

The "Class I mover," an indicator of Dean's raw milk costs, fell 45 percent in the third quarter from a year earlier but rose from the previous month in September and October.

Dean expects raw milk prices in general to trend higher through next year, but does not expect them to reach record high levels seen in 2007 and 2008.

Dean said it now expects 2009 earnings before one-time items to be at least $1.63 a share, up from its August forecast of $1.60. Analysts on average forecast $1.66, according to Thomson Reuters I/B/E/S.

Third-quarter profit rose to $49.7 million, or 27 cents a share, from $37.8 million, or 24 cents a share, a year earlier.

Excluding one-time items, it earned 34 cents a share, beating analysts' average forecast of 33 cents, according to Thomson Reuters I/B/E/S.

"Given the sharp year-on-year decline in dairy prices during the period, we believe some investors may have expected a stronger showing," J.P. Morgan analyst Terry Bivens said in a research note.

Net sales fell 13 percent to $2.77 billion, weighed down by lower milk prices, which are partially passed on to consumers. Analysts on average forecast $2.94 billion.

Dean shares fell $1.63 to $16.60 in morning trade on the New York Stock Exchange, (Reporting by Brad Dorfman. additional reporting by Dhanya Skariachan; Editing by Derek Caney and John Wallace)