Dean Foods profit forecast misses, shares slip 10 percent
(Reuters) - Top U.S. dairy company Dean Foods Co (DF.N) said it expects its milk volumes to be below the industry average in 2013, adding to concerns that it is too exposed to a business with shrinking market, volatile costs and intense price competition.
Shares of Dean Foods, which spun off its WhiteWave (WWAV.N) organic milk unit in October and sold its Morningstar dairy product division in December, fell 10 percent in heavy trading.
"Dean's 2013 milk volume guidance suggests market share loss, partially resulting from lost private label business that indicates worsening, not improving, industry overcapacity," Janney Capital Markets analyst Jonathan Feeney said in a note.
Dallas-based Dean, known for its Meadow Gold, Land O' Lakes and namesake brands, said it lost business in the fourth quarter from a "significant" customer who opted to source milk from a rival with cheaper prices.
The company did not identify the customer but said it expects a low-single digit percentage decline in full year milk volumes.
It also forecast a first-quarter profit of 22 cents to 27 cents per share, including the operations of WhiteWave but excluding Morningstar — below the 30 cents that analysts were expecting, according to Thomson Reuters I/B/E/S.
Dean's scale and distribution network makes it uniquely positioned in the dairy industry, Chief Executive Gregg Tanner said on a post-earnings conference call with analysts.
"We are the largest processor and distributor (of milk) in the country. In fact, we are roughly five times the size of our next largest competitor, and uniquely positioned as the only processor with a coast-to-coast network," Tanner said.
"A slow decline in consumption per capita, lower birth rates, demographic shifts have resulted in a flat to modestly declining fluid milk consumption."
Dean said it would cut fixed costs by closing 10 to 15 percent of its plants and eliminating many distribution routes.
Raw milk costs averaged $20.32 per 100 pounds in the fourth quarter, up 8 percent from last year and 23 percent from the third quarter.
Dean also said it had decided to retain up to 19.9 percent of WhiteWave Food Co, which sells Silk soy milk and Horizon organic dairy products, to provide financial flexibility.
The company had cash and cash equivalents of $78.9 million and total debt of $3 billion, as of December 31.
Dean, which still has an 86.7 percent stake in WhiteWave, previously said it could sell its entire stake. The sale of 12 percent of WhiteWave through an initial public offering in October raised $391 million.
WhiteWave also reported quarterly sales that missed Wall Street estimates and forecast a first-quarter profit below expectations.
Its shares fell as much as 6.7 percent to $15.31 on the New York Stock Exchange on Wednesday.
Dean reported a net profit of $37 million, or 20 cents per share, for the quarter ended December. Total operating costs and expenses fell 15 percent to $644.9 million. Revenue rose 3 percent to $3 billion.
Dean Foods shares were down $1.84 at $16.55 on the New York Stock Exchange on Wednesday.
(Reporting by Siddharth Cavale in Bangalore; Editing by Joyjeet Das)