Dean Foods earnings pressured by private label

by Keith Nunes
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DALLAS — The Dean Foods Co. remains challenged in the fluid milk category as retailers continue to offer private label products at lower prices than Dean’s branded items.

“Our results in the quarter remain well below year ago levels, but represent a step forward from the difficult start to 2010,” said Gregg Engles, chairman and chief executive officer of Dean Foods. “While the challenges in the fluid milk category continue to negatively impact results, we remain focused on significantly lowering our cost structure to position us to win over the longer term.”

For the second quarter ended June 30, Dean Foods earned $42,852,000, equal to 25c per share on the common stock. The results compared unfavorably to the same period of fiscal 2009 when net income was $62,316,000, or 39c per share.

Sales for the quarter were $2,954,653,000, an increase compared with the second quarter of fiscal 2009 when sales were $2,669,853,000.

Within Dean Foods’ Fresh Dairy Direct-Morningstar business unit, the company recorded operating income of $146.8 million, a 28% decline compared with the same period of fiscal 2009. The company said retail pricing for private label milk remains well below historical levels, widening price gaps between branded and private label offerings and driving continued consumer trade-down to lower-margin private label products.

Segment sales during the quarter increased 8% to $2.5 billion compared with fiscal 2009.

“At a high level, our current outlook for the business is fundamentally unchanged from the first quarter,” Mr. Engles said. “Consumers, particularly working class consumers, remain underemployed and over leveraged. Their economic anxiety is reflected in a highly promotional retail environment for private label milk that is driving negative private label versus branded mix for our Fresh Dairy Direct-Morningstar business. Despite aggressive retail pricing, category volumes are soft. As a result, our expectations for Fresh Dairy Direct-Morningstar performance have not changed from last quarter’s call.

“On the other hand, our more value-added business at WhiteWave-Alpro, bolstered by increasingly confident upper income consumers, continue to post strong volume, revenue, and operating profit growth — a trend we expect to continue, which should result in very solid annual profit growth for that segment.”

Operating income within the WhiteWave-Alpro business segment rose 23% compared with the same period this past year. Sales within the business unit were $459 million, a 31% increase compared with the second quarter of fiscal 2009.

For the first half of fiscal 2010, net income for Dean Foods was $83,767,000, or 48c per share, a decline compared with the first half of 2009 when the company earned $137,516,000, or 88c per share.
Sales for the first half of fiscal 2010 were $5,915,796,000, an increase compared with the first half of fiscal 2009 when sales were $5,361,326,000.

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