Dean Foods said today (19 February) that it would “de-emphasise” M&A from its strategy in 2010 as the US dairy giant focuses on cutting costs and growing its existing business.
The company, which bought soy business Belgium-based Alpro last June, is facing increasing pressure on its prices from retail customers in the US, which chairman and CEO Gregg Engles said would weigh on earnings in the “near term”.
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Speaking at the CAGNY investor conference in Florida, Engles said Dean Foods would look to bolster earnings through cost control and pushing its current portfolio.
“In 2010, we expect to de-emphasise acquisitions as we redouble our focus on cost savings and driving growth in our existing branded portfolio,” Engles said. “It’s imperative that we drive out cost to extend our advantage; we enter 2010 as a company aligned on this priority.”
Pressure from retailers to extract concession on price, coupled with a continued shift to private label, placed Dean Foods’ bottom line under pressure during the fourth quarter of 2009.
The maker of Horizon Organic milk revealed last week that fourth-quarter earnings fell 24% to US$50.3m, down from $66.4m last year.
In 2009, Dean Foods reduced costs by US$75m, including savings of some $60m within its Fresh Dairy Direct liquid-milk business, operations that account for over 70% of sales.
COO Joe Scalzo told CAGNY that Dean Foods planned to eke out more savings in 2010. “We’re on pace to accelerate our cost-savings efforts and deliver $90m in savings, of which $75m will be realised in our Fresh Dairy Direct business.”
Scalzo insisted Dean Foods was “on pace” to hit its target of $300m in cost cuts within five years, which the company set last year.
Procurement savings was key to meeting that goal, Scalzo said. “While we’re an $11bn company, in many ways we are just starting to act like it,” he admitted.
“When we started down this path, we procured at a market level. We acted like 60-plus small dairy companies – pretty similar to our competition.”
Dean Foods was now making efforts to “centralise” its processes and become “disciplined” in buying.
