DALLAS — The abrupt resignation of Dean Foods chairman Tom Davis on Aug. 7 combined with the reporting of weaker sales on Aug. 10 for the second quarter of fiscal 2015 sent the world’s largest dairy processor’s shares tumbling. Dean Foods did not provide any reason for Mr. Davis’ departure from the company.
“As you may have seen, Tom Davis resigned from our board of directors on Friday,” said Gregg Tanner, chief executive officer, in a conference call with financial analysts on Aug. 10. “I would like to acknowledge his 14 years of service and note that he leaves at a time when we feel more optimistic than ever about the future of Dean Foods.”
Dean Foods recorded a profit during the second quarter, ended June 30, of $26,519,000, equal to 26c per share on the common stock, and an improvement compared with the loss of $645,000 the company incurred during the same period of the previous year.
But it was the sales decline to $2,014,706,000 during the quarter from $2,393,869,000 the previous year that raised concern among investors.
In the second quarter, Dean Foods’ sales volumes across all products totaled 653 million gallons, and were in line with management’s expectations. Fluid milk volumes continued to represent about 75% of total volume.
|Gregg Tanner, c.e.o. of Dean Foods.|
“For Q2, our fluid white milk volume performance continued to be impacted by category declines, channel dynamics, and our rate realization strategy on branded fluid milk products, although our total flavored milk volume performance was down less than 1%,” Mr. Tanner said. “Specific to fluid milk in the second quarter, our volumes on an unadjusted basis declined 3.4% as compared to a year-ago period. For the quarter, from a channel perspective, volumes were down across all channels except food service.”
Despite the decline in sales, Mr. Tanner said the market for fluid milk is showing signs of improvement.
“It’s worth noting that for the full quarter, within retail channels I.R.I. (Information Resources, Inc.) data indicates that fluid milk volumes declined 1.6% as compared to the year-ago period,” he said. “That is the strongest category performance as measured by I.R.I. since Q3 of 2012.”
To further bolster his argument that the market for fluid milk is improving, Mr. Tanner added that for the first time since the economic recession, U.S. birth rates rose in 2014 versus the prior year. Additionally, he said the rate of second and third births grew 1% and 2%, respectively in 2014.
“Second, cereal consumption declines have begun to moderate,” he said. While there is still a clear shift to on-the-go breakfast offerings, the deceleration marks a positive trend, since breakfast milk consumption represents about 30% of daily consumption occasions.
“Next, organic milk volume growth at retail has decelerated the past five quarters,” he said. “While the category is still experiencing positive growth, supply issues and retail prices appear to be capping its share of the category.”
With regards to competition from plant-based beverages, Mr. Tanner said increased sales of almond milk appear to be fueled at the expense of soy milk.
“And like organic milk, the almond milk category has had similar deceleration in growth rates since early 2014,” he said.” It also appears to us that almond milk may be on its way to ending its growth cycle much sooner than soy.”
Yet despite the positive signs, Mr. Tanner said Dean Foods continues to be focused on productivity initiatives in response to the volume and category declines. The company will cease operations at its Rochester, Ind., processing plant in October.
For the first six months of fiscal 2015, Dean Foods recorded a loss of $47,221,000. The company incurred a loss of $9,601,000 during the same period of the previous year.Sales for the first six months of the fiscal year were $4,065,468,000 compared with sales of $4,734,909,000 during the previous year.