Dean Foods to close milk factories as earnings sour

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Shares of Dallas-based Dean, known for its Meadow Gold and Dean's milk, fell as much as 9 percent after it said that the current quarter would be the most challenging this year.

Dean lost a large Wal-Mart Stores (WMT.N) contract earlier this year and an analyst warned that price pressure from retailers and competitors won't go away anytime soon.

"Commodity costs remain volatile and competitive pressures are quite intense and shows no sign of easing," Erin Lash of Morningstar Inc told Reuters.

The company, which has divested many of its own food brands to focus on milk, lost a "significant" amount of business from Wal-Mart to a cheaper rival, although it still sells milk to the chain.

It said in February that the contract loss would lead to a small decline in 2013 milk volumes but the situation has since grown worse.

Chief Executive Gregg Tanner said on Thursday the fluid milk category volume this year will likely be a bit softer than the company had previously anticipated.

"We have accelerated the severance (costs) including our plans to close 10 to 15 percent of our plants...we expect these efforts to offset the volume deleverage," Chief Executive Gregg Tanner said on a conference call with analysts.

The company said it planned to close eight to 12 of its factories by the middle of next year.

Dean reported a net loss of $56.9 million, or 30 cents per share, on an attributable basis for the quarter ended June, compared with a profit of $56.2 million, or 30 cents per share, a year earlier.

On an adjusted basis, it earned 13 cents per share from continuing operations. Analysts on average were expecting a profit of 14 cents per share on revenue of 2.25 billion.

Dean forecast a third-quarter adjusted profit between 5 and 8 cents per share, below the average estimate from analysts of 11 cents per share, according to Thomson Reuters I/B/E/S.

The company said it now expects full-year adjusted earnings between 47 cents and 53 cents per share.

Dean Foods' fluid milk volumes fell 6 percent in the quarter, a sharper fall than the 2.1 percent fall across the industry.

It said its share of U.S. fluid milk sales volume declined to 36.4 percent during the second quarter from 37.8 percent in the first quarter of 2013.

Revenue was flat at $2.2 billion.

Dean Foods sold Morningstar, which sells coffee creamers, ice cream mixes and other dairy products, to Canadian dairy products maker Saputo Inc (SAP.TO) in January.

The company last month divested of the last of its stake in WhiteWave Foods Co (WWAV.N), which owns brands such as Silk soy milk, International Delight and Land O Lakes coffee creamers.

Shares in the slimmed down company, which has dropped out of the S&P 500 Index, traded as low as $10.01 on the New York Stock Exchange on Thursday.

They recovered a little to $10.08 by lunchtime on Thursday but it is still a sharp fall for a stock that had risen as much as 25 percent this year.

Dean Foods is the largest processor and distributor of milk in the country. It says it is about five times the size of its next largest competitor.

 



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