Dean Foods has suggested that its performance will pick up in the back half of the coming year, as price pressure “bottoms out”, cost cuts take hold and new business comes online.
The company today (16 February) posted a dramatic fall in earnings in 2010, from US$1.38 per share in 2009 to $0.50 a share last year. Looking to the coming 12 months, Dean Foods issued full-year earnings guidance of $0.55-0.65 per share for 2011.
Speaking during a conference call with analysts, chairman and CEO Gregg Engles said that the group expected a “tough” start to the year.
“We expect the first half of 2011 to be particularly difficult but results are expected to strengthen in the back half,” Engles revealed.
Management indicated that ,while commodity costs are likely to rise in the first half, weighing on earnings, it expects that the commodity price cycle will begin to reverse in the third and fourth quarters.
Engles said that Dean Foods also expects new business to contribute “a meaningful amount of volume”, offsetting recent soft volumes by the third quarter.
Meanwhile, the group’s cost cuts will “gain momentum” and lift results in the second half of the year, Engles predicted. The group is targeting $125m in productivity savings over the 12-month period, in particular targeting shorter-term projects with lower capital requirements.
Looking to pricing, Engles adopted a cautiously optimistic tone, predicting that pricing pressure will likely to ease in the back half as an “exhausted” industry is increasingly unwilling to push through further reductions.
“The heaviest portion of price re-negotiation was in the first to third quarters of last year. That activity has meaningfully abated. The signs that we are seeing are that there is a level of exhaustion in the industry… companies [are] walking away from business at current price levels,” Engles said.
“There doesn’t appear to be much more capacity to take price down in this industry. We feel we are hitting a bottom.”