Dean Foods Co. (DF) swung to a fourth-quarter loss on one-time charges and continuing woes at its dairy business, yet the company sees signs of retail milk prices finally stabilizing.

The nation's largest milk producer offered little optimism for improved earnings in the first half of 2011 and projected full-year returns below analysts' expectations. Dallas-based Dean has been pummeled by heavy competition from private-label brands, as grocers discounted milk in an effort to lure consumers into their stores.

Yet the worst may be over for the company as shares climbed 8.9% to $10.66 in recent trading.

Chairman and Chief Executive Gregg Engles said retail milk prices appear to have established a bottom as grocers and private-label brands see no benefit in lowering prices further. Yet he cautioned during a conference call wholesale milk prices are spiking. The increase runs counter to forecasts just three months ago as strong global demand and weather-driven production problems in Australia and New Zealand drive increased prices.

"This inversion of the commodity outlook will clearly present a drag on [first quarter] and [second quarter] earnings," Engles said.

The company continues to pin its hopes on cost-cutting efforts. The company cut more than 1,400 jobs in 2010, while closing facilities and slashing delivery routes over the last two years. Engles called a $300 million cost-cutting plan a first step, saying that "we will continue to aggressively attack costs for the foreseeable future."

Analysts said investors appeared to be encouraged that while earnings remained weak, at least they appear to be stabilizing. The company also reinstituted earnings guidance after suspending it in May 2010, providing more clarity on the year ahead, said Carla Norfleet-Taylor, analyst for Fitch Ratings.

"The company really came clean in acknowledging there's been a permanent step-down in profitability, at least in the near term," she said.

For this year, the company projects earnings of 55 cents to 65 cents a share. Analysts surveyed by Thomson Reuters expected earnings of 78 cents a share. For the first quarter, Dean Foods expects per-share earnings of 5 cents; analysts projected 16 cents.

Vicki Bryan, an analyst with Gimme Credit, an independent research firm on corporate bonds, said she was "skeptical" about the bounce in the stock price given murky 2011 prospects and sharply higher wholesale milk prices.

Bryan said the rising milk costs could offset the cost reductions and leave Dean "in worse shape by year end."

Dean, which also makes Horizon Organic dairy products, Silk soy milk and International Delight coffee creamers, reported a fourth-quarter loss of $20.7 million, or 11 cents a share, compared with a year-earlier profit of $50.3 million, or 27 cents a share. Excluding litigation-related charges and deferred tax asset write-downs, earnings fell to 15 cents a share from 32 cents a share.

In November, the company forecast earnings of 13 cents to 18 cents a share, well below Wall Street's average estimate at the time. Analysts ahead of Wednesday report on average had expected earnings per share of 14 cents.

Net sales rose 5.5% to $3.15 billion. Analysts expected $3.2 billion.

Gross margin fell to 24% from 26.8%.

The dairy segment, which is Dean Food's largest business and which primarily consists of conventional dairy operations, saw profit fall 30%, though sales rose 5% thanks to higher prices. Volume declined 5%, including a 3.2% drop in milk volume. The WhiteWave-Alpro segment, which includes ice cream and yogurt as well as organic products, reported sales rose 7% and earnings were up 14% on strong growth in its core brands.