Dean Foods announced its third quarter 2014 financials, saying it continues to be challenged by the current dairy commodity environment.
Operating loss for the quarter totaled $1 million, compared to third quarter 2013 operating income of $23 million. Third quarter 2014 adjusted operating income totaled $10 million, compared to adjusted operating income of $42 million in the year-ago period. Net sales for the third quarter of 2014 totaled $2.4 billion, compared to $2.2 billion in the third quarter of 2013.
"Given the continued challenges facing the dairy industry due to the dairy commodity environment, we are encouraged by the sequential improvement of our operating results which we believe reflects the success of our current business efforts," said Gregg Tanner, Chief Executive Officer. "This year has clearly been the most difficult operating environment we've ever experienced as a company."
Dean Foods' unadjusted fluid milk volumes declined 1% on a year-over-year basis, reflecting the last of the negative impacts resulting from the loss of a contract with Wal-Mart.
USDA did not publish comparable industrywide data for any of the months in the third quarter, but Tanner believes Dean did better than the industry as a whole.
"Our visibility into our share performance is hampered by USDA data now lagging longer than usual. But, when published, we believe the USDA data will show that the category continued to decline in the third quarter," he explained. "With our volume performance in the third quarter, if the USDA data were to report a category decline of 3%, our share would approximate 35.6%. This would represent a 0.7% increase in our share of the fluid milk category since bottoming out in the third quarter of 2013, at 34.9%. With pricing actions beginning to take effect, we may have experienced a sequential decline in our share, which was 35.9% in the second quarter."
The third quarter 2014 average Class I Mover, a measure of raw milk costs, was $23.51/cwt., an increase of 24% from the third quarter of 2013. The third quarter 2014 average was the second highest quarterly Class I Mover average in the history of the U.S. dairy industry, just less than 1% below the second quarter of 2014. The company anticipates the elevated Class I Mover trend to continue and the fourth quarter average to be among the highest averages ever.
Turning to the fourth quarter, Tanner expects results to improve.
"The dairy commodity environment remains extremely challenging and for the fourth quarter we expect raw milk costs will remain stubbornly high despite continued strong global production growth and waning demand,” he said. “We don't expect much relief on raw milk costs until early 2015, but we do expect significant butterfat cost declines at the end of the fourth quarter. Industry volumes remain soft and we expect our fourth quarter volumes to be down low single digits, as compared to prior year, but with a continued improvement to net price realization. Further, as we move past our extended period of heavy plant closure activity and realize further costs reductions, we believe the rate of per-unit production and distribution costs will continue to decline and flatten from a year over year basis."