Top U.S. dairy company Dean Foods Co (DF.N) reported a better-than-expected quarterly profit thanks to cost cuts but said volumes of regular milk declined, adding to concerns about the company's strategy to focus on that business.
Shares of Dean Foods, which spun off its WhiteWave (WWAV.N) organic milk unit in October and sold its Morningstar dairy product division in December, fell 10 percent in early trading.
Investors have been concerned that the company is now too exposed to a shrinking market with volatile costs and intense price competition from store brands.
The company, known for its Meadow Gold, Land O' Lakes and namesake brands, said it lost business in the fourth quarter from a "significant" customer that it did not identify and said the loss will reflect in second-quarter results.
Raw milk costs averaged $20.32 per 100 pounds in the fourth quarter, up 8 percent from last year and 23 percent from the third quarter.
The company said it expects a low-single digit percentage decline in 2013 milk volumes.
It expects earnings of 22 cents to 27 cents per share in the first quarter, including the operations of WhiteWave but excluding Morningstar.
Analysts on average were expecting earnings of 30 cents per share, according to Thomson Reuters I/B/E/S.
Dallas-based Dean Food also said on Wednesday that it had decided to retain up to 19.9 percent of WhiteWave Food Co, which sells Silk soy milk and Horizon organic dairy products.
The company did not explain why it had decided to retain a stake, but reaffirmed plans to spin off most WhiteWave shares to shareholders in a tax-free transaction.
Dean, which still has an 86.7 percent stake in WhiteWave, previously it could sell its entire stake. The sale of 12 percent of WhiteWave through an initial public offering in October raised $391 million.
The company also sold its Morningstar division, which produces cottage cheese, coffee creamers and other dairy products, to Canada's Saputo Inc (SAP.TO) for $1.45 billion in December.
Dean reported a net profit of $37 million, or 20 cents per share, for the quarter ended December 31, compared with a loss of $9.8 million, or 5 cents per share, a year earlier.
Total operating costs and expenses fell 15 percent to $644.9 million. Revenue rose 3 percent to $3 billion.
Analysts expected earnings of 30 cents per share on revenue of $3.37 billion.
Dean Foods shares were down 8 percent at $16.92 on the New York Stock Exchange on Tuesday morning.
(Reporting by Siddharth Cavale in Bangalore; Editing by Joyjeet Das)