US food manufacturer Dean Foods has reported an 8% decline in quarterly net income, which the company attributed to an "unprecedented" rise in the cost of raw materials.

The company posted net income of US$77.1m, or 47 cents per share, for the second quarter to 30 June, compared to $83.8m, or 54 cents per share, in the year-ago period.

Net sales for the second quarter totalled $2.8bn, an increase of 26% over the second quarter of 2003, as the company increased selling prices to offset increases in raw milk costs. The company said solid growth in its branded products division and the acquisitions of Horizon Organic and Ross-Swiss Dairies in 2004 and Kohler Mix Specialties in 2003 also contributed to revenue growth.

"As we expected, this year's second quarter was a difficult one for Dean Foods," said Gregg Engles, chairman and chief executive officer. "During the quarter, dairy commodities rose to historic highs, as did many other agricultural inputs and energy prices. We did a reasonably good job of passing these cost increases along, particularly in our dairy business…Increased spending against our brands also impacted our results compared to last year."

Engles said raw milk prices were showing signs of returning to more normal levels in the third quarter, but market uncertainty remained among both consumers and customers caused by milk price shifts over the last four months.

The company also announced plans to consolidate its three branded businesses: White Wave, Horizon Organic and the Dean National Brand Group. The newly combined operation will be headquartered in the Boulder, Colorado area and is expected to have 2004 revenue of approximately $1.1bn.

"Our current structure, with three distinct organisations, including three sales forces and three separate supply chains, is not the right structure to tap the full potential of our brands. This new organisation will allow us to streamline and simplify our business model, and is the right design to drive our business forward," said Engles.

"In addition to allowing us to leverage our scale and increase profitability, combining the three businesses will enable us to increase our investment in marketing and innovation," he added.