Dean Forecast Tops Estimates as Costs Decline Amid Milk Glut

  • CEO sees `favorable commodity environment' as milk prices drop
  • DairyPure brand gains market share even as total volume falls

Dean Foods Co., the largest U.S. milk processor, forecast first-quarter earnings that exceeded analysts’ estimates after a slump in the cost of the commodity boosted margins.

Profit excluding one-time items will be 32 cents to 42 cents a share, the Dallas-based company said in a statement Monday. The midpoint of that range is higher than the 33-cent average of nine estimates compiled by Bloomberg. Dean also reported fourth-quarter income of 36 cents a share, compared with the 34-cent average estimate.

Dean buys raw milk from farmers, pasteurizes and processes it, and then sells it on to retail stores, restaurants and food-service vendors. The price U.S. farmers received for milk dropped in 2015 and will decline again this year as production climbs, the Department of Agriculture said in a report Feb. 9. In the first quarter, the average price for Class I Mover, a raw-milk benchmark, will drop about 14 percent from a year earlier, Dean said.

Faced with declining domestic milk consumption, Dean is focusing on developing its DairyPure brand. The product contains no artificial growth hormones and was introduced in May to counter the growth of organic milk and soy- and almond-based substitutes. DairyPure increased its market share to 9.9 percent in the four-week period ended Jan. 24, possibly helping erode private-label market share, Bloomberg Intelligence analyst Ken Shea said in a report earlier this month.

Volumes Decline

Improved profitability in the fourth quarter came even as volumes fell 3.6 percent. Dean’s sales declined to $2.02 billion from $2.4 billion, trailing the $2.07 billion average estimate.

For the first quarter, the company expects volumes to drop “in the low single digits.”

“With the continuation of commercial and brand initiatives, diligent cost focus, and an overall favorable commodity environment, we expect our operating and financial momentum to continue,” Chief Executive Officer Gregg Tanner said in the statement.

Dean shares erased earlier gains, falling 4.4 percent to $19.57 at 10:16 a.m. in New York.

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