Dean Foods starting to streamline brand presence

by Keith Nunes
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DALLAS — The success of the TruMoo brand of flavored milk has prompted the Dean Foods Co. to start transitioning many of its regional brands to common graphics in an effort to create a uniform presence throughout the country.

“We are leveraging some of the learnings from the success of TruMoo to apply to our portfolio of regional white milk brands,” said Gregg Tanner, chief executive officer, during a conference call with analysts on Nov. 12. “For example, we are transitioning these brands to a common graphics look that includes our purity checklist that assures our consumers that our farmers pledge not to use artificial growth hormones and that we test all of our milk for the presence of antibiotics among other important differentiators.

“Through robust research, we know that this messaging resonates with consumers and the conversion of our graphics to a new common look allows us to begin to benefit from our brand equities across our portfolio. At the same time, it opens avenues for us to leverage marketing spend across traditional regional brand borders.”

Dean Foods also remains on track to close 10% to 15% of its plants in an effort to reduce costs.

“We have announced eight plant closures over the past 12 months, seven of which have been completed,” Mr. Tanner said. “The closures will improve the efficiency of our remaining network and drive increased competitiveness going forward.”

Mr. Tanner added that Dean Foods would be closing additional plants by mid-2014.

The benefits of Dean Foods’ spin-off of its Morningstar and WhiteWave businesses manifested during the third quarter of fiscal 2013, ended Sept. 30 when the company recorded net income of $415,120,000, equal to $4.41 per share on the common stock. During the same period of the previous year the company earned $36,441,000, or 39c per share.

On an adjusted basis, net income during the third quarter of fiscal 2013 was $11,090,000. Sales for the quarter were $2,200,899,000, a decline compared with the third quarter of fiscal 2012 when sales totaled $2,236,969,000.

Soft industry volumes combined with higher raw milk costs and costs related to plant closings affected the company’s performance during the quarter.

Dean Foods’ share of U.S. fluid milk sales volume declined to 34.9% during the third quarter from 36.4% in the second quarter of 2013, according to the company. Industry fluid milk volumes declined approximately 1.7% year-over-year in the third quarter on an unadjusted basis, based on U.S. Department of Agriculture data and company estimates.

“The partial loss of business with a significant customer combined with our general category weaknesses resulted in total volumes of 685 million gallons for the quarter,” Mr. Tanner said. “This represents an 8% decline from 749 million gallons in Q3 of 2012 on a pro forma and comparative basis.”

Mr. Tanner added that for the near term the dairy market will remain challenging with soft industry volumes and high milk prices.

“Additionally, with approximately 8% of Supplemental Nutrition Assistance Program or SNAP benefits spent in the dairy category, we are cautious about the impact that the recent 5% reduction in those benefits related to the expiration of the 2009 American Recovery and Reinvestment Act will have on industry and broader grocery volumes,” he said. “The dairy commodity environment looks more challenging than previously expected as prices remain stubbornly high despite strong global production growth.

“Industry volumes remain soft. We expect to continue to have temporarily high costs in Q4 related to the plant closure activities. We expect this to be partially offset by our recent new business wins that will begin to improve our volume performance in the fourth quarter.”
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