US dairy group Dean Foods has seen quarterly profits tumble 38% thanks to a rising raw materials bill and restructuring costs from its core dairy business.

The company posted operating profit of US$103.3m during the three months to the end of September.

Dean Foods reported that its dairy division had incurred cots of $19.8m during the quarter due, in part, to job cuts and a management revamp.

Net sales were up 24% to $3.1bn due to growing turnover from the company's WhiteWave Foods business and the "pass-through" of higher dairy commodity costs.

Nevertheless, chairman and CEO Gregg Engles admitted the third quarter had seen "the most difficult operating environment" in the history of Dean Foods.

"Raw milk prices rose rapidly to record highs and we were challenged to increase our pricing fast enough to keep pace," Engles said. "As retail prices spiked, rising an average of seventy-five cents per gallon over the course of this year, volumes softened and our sales mix skewed more heavily toward private label milk."

CFO Jack Callahan said high raw milk prices will continue to put pressure on the business until the end of the year.

However, Callahan said it is "premature" to make forecasts for 2008 due to the "unsettled" nature of dairy commodity prices and the organic milk market.

"We anticipate overall operating profits in the first quarter will continue to be below previous year levels, consistent with the trend since the second quarter of 2007," Callahan said.