Dean: Prices, SNAP cuts to add challenges

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Dean Foods Company announced its fourth quarter and full year 2013 financials, and predicted a challenging first half of 2014 during its quarterly investor call.

Dean Foods' share of U.S. fluid milk sales volume increased to 35.7% during the fourth quarter of 2013, up from 34.9% the previous quarter.

However, due to the loss of its contract with Wal-Mart, Dean Foods' unadjusted fluid milk volumes declined 9% on a year-over-year basis. Excluding the loss of that business, and another customer's decision to vertically integrate, Dean Foods' milk volumes declined 0.6% in the fourth quarter of 2013, better than the previous quarter’s -1.7%. (Industry fluid milk volumes declined approximately 2.2% year-over-year in the fourth quarter on an unadjusted basis, based on USDA data and company estimates.) Total Dean volumes across all products declined 8% from the year ago period to 699 million gallons in the fourth quarter of 2013.

The fourth quarter 2013 average Class I mover, a measure of raw milk costs, was $19.92/cwt., a 2% decline from the fourth quarter of 2012, but 5% above the third quarter 2013 level.

Raw milk prices and sales volumes pose challenges for 2014, said Gregg Tanner, Chief Executive Officer of Dean Foods. With U.S. fluid milk sales down 2.2% in the fourth quarter compared to the year before, he said higher commodity prices and the Farm Bill's reduction of Supplemental Nutrition Assistance Program benefits will also pose challenges, especially through the first half of 2014.

"First, the consensus view of the dairy commodity outlook for 2014 appears to be more challenging than previously expected as current dairy commodity prices have moved near or beyond all-time highs despite strong global production growth,” Tanner said.  “On our last earnings conference call, we expressed a view that raw milk prices would begin to fall in the early part of 2014, before moderating and rising slightly over the back half.  However, since then, raw milk prices have risen sharply driven by global demand for imported dairy products. We now expect Class I dairy commodity prices to climb throughout the majority of the first half, before flattening and declining moderately in the second half of 2014.

“We are hopeful that our new volume wins, and increasing share gains, will partially offset the asset deleverage soft category volumes create; however soft volumes, coupled with inflation, can negate some of the impact of our cost reduction efforts, and makes it harder to take those savings to the bottom line,” he said.

Dean said it continued to make progress in cost savings though plant closures, closing its ninth of up to 12 planned closures since the fourth quarter of 2012. Dean planned to close 10%-15% of its manufacturing facilities by mid-2014.

”We are working to offset both commodity and non-commodity related inflation through a combination of cost reductions and price realization. That said, we are clearly beginning the year behind commodity inflation in the first quarter given the rapid rise in Class I prices to all-time highs,” Tanner explained.

"We continue to feel confident in our long-term trajectory," said Tanner. "In 2013, Dean Foods successfully transformed itself, generating more than $2 billion in shareholder value, substantially deleveraging the company, and focusing the company on its core dairy business.  At the same time, we faced significant challenges in the inflationary commodity environment and through competitive pressures on our business.  This very challenging environment will persist for Dean Foods, particularly during the first half of 2014, but we are confident that we have the right strategies in place to drive meaningful productivity savings and top line volume growth through the balance of the year."

Fourth quarter 2013 operating income totaled $35 million, compared to fourth quarter 2012 operating income of $38 million. Fourth quarter 2013 adjusted operating income totaled $48 million, compared to $62 million in the year-ago period on an adjusted basis.

Full year 2013 operating income totaled $131 million, compared to full year 2012 operating income of $261 million.  Full year 2013 adjusted operating income totaled $228 million, compared to $256 million in the year ago period on an adjusted basis.

Net loss from continuing operations attributable to Dean Foods totaled $37 million for the fourth quarter of 2013, compared with $8 million in income the previous year. On an adjusted basis, fourth quarter net income from continuing operations attributable to Dean Foods totaled $17 million, compared with $21 million in the previous year. 

Net income attributable to Dean Foods totaled $813 million for the full year 2013, compared with $159 million in the previous year.  On an adjusted basis, net income for the full year 2013 totaled $82 million, compared to $72 million in 2012.

 

SOURCE Dean Foods Company


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