DALLAS — The successful spin-off of WhiteWave Foods and the sale of Morningstar Foods proved to be very profitable for the Dean Foods Co. in fiscal 2013. In 2014, the outlook isn’t as positive as the costs of raw materials for the manufacture of dairy products are at or near all-time highs.
“Looking back on 2013, particularly over the second half, it was a very challenging year as domestic raw milk prices continued to be meaningfully impacted by global developments in ways that we had not seen previously,” said Gregg Tanner, chief executive officer of Dean, during a conference call with financial analysts. “Through November, the U.S. has exported over 1.1 billion lbs of powder, which represents a 24% increase compared to last year’s record year. At current levels, powder prices are at their highest levels since the fall of 2007.
“While strong export demand is not a new development, its magnitude and intensity have been underestimated. We believe that in order for domestic raw milk prices to experience a noticeable decline in the second half of 2014 there will need to be a significant supply response from both the U.S. and the European Union. Overall, we expect raw milk prices to remain elevated across all categories throughout 2014, especially in the first half.”
Mr. Tanner said high raw milk prices are an “undeniable” headwind for Dean Foods. The company has initiated a series of cost reduction and pricing programs in an effort to offset some of the impact from rising input costs.
Since 2012, Dean has closed eight plants and plans to close more in 2014. When the efficiency initiative was announced, the company estimated it would close 10% to 15% of its plant network, and Mr. Tanner said Feb. 11 the total would be at the high end of the estimate.
“We expect the first quarter will be the most difficult quarter of this year,” Mr. Tanner said. “We will be chasing record high Class I raw milk prices with Q1 expected to achieve the highest quarterly average on record with March’s forecasted price expect to be 17% above December's level.
“Finally, given the extremely cold weather across a large part of the U.S., we have experienced temporary school milk volume losses and increased distribution costs. All-in we expect first-quarter adjusted diluted earnings per share to be approximately breakeven with 3c of potential risk or benefit implied.”
Earnings for Dean Foods rose sharply during fiscal year 2013, ended Dec. 31, due to the company’s spin-off of the WhiteWave Foods Co. and sale of its Morningstar Foods business unit to Saputo, Inc. Net income for the year totaled $813,178,000, equal to $8.67 per share on the common stock. During fiscal year 2012 Dean Foods’ net income was $158,622,000, or $1.72 per share.
Sales for fiscal 2013 were $2,295,450,000, a slight decline compared with $2,467,582,000.
During the fourth quarter of the year the company recorded a loss of $37,677,000, which compared with earnings of $28,133,000, or 30c, during the previous year.Fourth-quarter sales were $2,295,450,000, a slight decline compared to the previous year when sales were $2,455,130,000.