Dean Foods’ chief executive Ralph Scozzafava has outlined how he plans to transform the US dairy business back to profitable growth, with “winning in private label” a key component of his objectives.
Scozzafava addressed the investment community yesterday (27 February) after Dean Foods reported its biggest annual loss in seven years, which came alongside an announcement the company has launched a strategic review that could entail an outright sale or a joint venture, as well as a host of other options.
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The DairyPure milk and TruMoo brand owner has been struggling financially of late, and it was no exception last year, despite an “enterprise-wide cost productivity plan” which seeks to reap US$150m in savings by the end of the decade.
Shares in the New York-listed firm slumped yesterday amid all the negative news, which included the suspension of quarterly dividend payments and a decision not to provide any financial guidance almost two months in to the current fiscal year.
However, Dean Foods revealed it has also recently refinanced its debt obligations, a move which, along with the dividend suspension, Scozzafava and his finance chief said will give the company more flexibility to take its transitory plan forward.
Talking specifically about the dividend, the chief executive told investors yesterday: “This will enable us to allocate additional financial resources toward the execution of our transformation plan, which we think is prudent and in the best interest of all stakeholders.”
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By GlobalDataAnd he also tweaked the transformation programme, which was previously described as the cost productivity plan, investment in the company’s “core capabilities” and addressing its commercial aspirations.
Scozzafava said the strategy now involves five pillars. “These pillars include winning in private label; building and buying strong brands; driving operational excellence; enhancing our future capabilities; and transforming the way that we go to market.
“To win in the private-label piece of the business we must be the low-cost provider and also transform the way we go to market. In short, we’re taking bold steps and meaningful actions in 2019 to drive our strategic plan forward and transform our company to more effectively compete and win in today’s landscape.”
But the CEO also acknowledged how branded products will still form an important part of the business, and he particularly emphasised the opportunities in ice cream, which includes the brands Friendly’s, Mayfield, Dean’s and Steve’s Ice Cream.
“We have a very balanced portfolio of products that enables us to participate in the growing private-label business, as well as drive a branded portfolio,” Scozzafava added. “We have solid opportunities to leverage both businesses.”
In ice cream, he said the company is seeking to unlock value-added propositions by entering “high-growth” categories like premium pint pots, and with the Steve’s brand it is introducing a “portfolio of super premium traditional dairy and non-dairy pint products”. Friendly’s has also launched sundae cups and cakes: “We have solid commercial plans in place and we are executing them right now in the marketplace,” Scozzafava said.
He added: “On the frozen side of the business we see attractive category dynamics in ice cream and frozen novelties. We have a national ice cream platform with excellent growth potential and strong positions in both branded and private label.”
Scozzafava and his chief financial officer Jody Macedonio said Dean Foods’ 2018 financial results were also hit by inflationary pressures, including higher freight costs, which other consumer goods food companies are also experiencing. The closure of seven US plants during the third quarter also weighed on its results.
“To help offset this escalating cost environment, we are continuing to address our cost base and have also executed certain pricing initiatives effective in the first quarter of 2019,” the CEO said.
Macedonio added: “Overall we are seeing some easing in transitory costs and we expect the plant consolidation savings to accelerate as we progress throughout the year.
“We did initiate pricing action in January of this year and we’re going to start seeing that flow through our results in 2019. So, I think it’s important that like other CPG companies that we price as we should when we’re seeing inflation in this escalating cost environment.” She also gave more details on the refinancing actions initiated in February after cutting debt by $15m last year to a net $887m.
Dean Foods extended the maturity on its accounts receivable securitisation facility for another three years to 2022. And it entered a new five year $265m revolving credit facility secured by real estate and other assets.
“This combined $715m in revolving facilities is right-size from what we had in place prior to closing and gives us cost-conducive borrowing capabilities,” Macedonio explained. “We’re very pleased that we have significantly increased accessible liquidity, gained greater covenant flexibility and extended the company’s debt-maturity profile.”
Despite all the negativity around Deans Foods announcements this week, which saw the stock close trading in New York yesterday down almost 14%, the CEO remains positive that all the actions put in place, along with the strategic review, will bring the right results.
“Complemented by our transformation strategy we’re reshaping ourselves into a company that will be more competitive lean and agile,” Scozzafava said. “Our primary focus is and will continue to be providing our customers and consumers with the brands and products that they love and the same great quality and excellent service that they have come to expect from us.”
