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.