White milk turns to red ink at Dean Foods

by Keith Nunes
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Higher fluid milk costs led to lower volumes during the quarter.

DALLAS — How difficult of a fiscal year was it for Dean Foods? It was historically bad, said Gregg Tanner, chief executive officer.

“As reflected in our results, 2014 was clearly the most difficult operating environment we have ever experienced as a company,” he said Feb. 10 in a conference call to discuss the company’s results. “During 2014, we were challenged by record high dairy commodity prices, softening category volumes, mix shift out of our brands, and meaningful cost friction.”

As a result, Dean Foods recorded a loss of $20 million for the fiscal year ended Dec. 31, 2014. The results compared unfavorably to the previous year when Dean Foods earned $813 million, equal to $8.58 per share on the common stock. The fiscal 2013 earnings were impacted by the company’s spin off of Morningstar Foods and White Wave Foods.

For the year, Dean Foods’ sales rose slightly to $9,503,196,000 compared with fiscal 2013 when sales were $9,016,321,000.

Total volumes for all products produced by the company fell 4% to 2.7 billion gallons during the year. For the fourth quarter, specifically within fluid milk, the company saw its volume decline 2%. Despite the declines, the company’s share of U.S. fluid milk sales volume remained flat at 35.9% during the third quarter. Fourth-quarter data from the U.S. Department of Agriculture is not available yet.

“Fluid milk costs remained elevated during the quarter and continued to negatively impact the overall health of the category by causing volume declines beyond what we could consider a normal trajectory for the category,” Mr. Tanner said. “While we are pleased with our volume and margin performance, we remain very concerned about the overall health of the category.”

Despite the bad news, Mr. Tanner said he is optimistic about Dean Foods’ performance in fiscal 2015. Most notably, fluid milk costs are declining and the strength of the U.S. dollar may slow the export of some dairy products. He also sees Dean Foods’ product portfolio fitting nicely with several consumer trends.

“The largest portion of our business, the fluid milk category, is a $20 billion category at retail,” he said. “Because of its ubiquity and frequency of purchase, it is an important category for retailers and represents one of the most profitable areas of the store for the typical grocer.

“With increasing demand for locally sourced protein-dense foods, with clean labels, milk is uniquely positioned to meet these growing consumer needs. In a recent study, over 70% of consumers indicated locally sourced products are an important consideration when making shopping decisions. Another recent NPD study indicated protein is the most sought after food ingredient by both adults and teens.

“And with America’s increasing focus on health and wellness, I believe milk, with its clean label, is well-positioned as a fresh, delicious source of nutrition and protein for consumers of all ages.

“As we exit 2014 and enter 2015, we are encouraged by the sequential improvement in our operating performance. With the progress achieved in our cost reduction initiatives, we believe we are very well positioned and are excited about the future direction of the business.”
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