DairyPure owner Dean Foods saw shares slide after results were announced

DairyPure owner Dean Foods saw shares slide after results were announced

Dean Foods, the US dairy group, today (8 August) booked higher second-quarter earnings but saw its net sales decline year-on-year.

The company posted net income of US$33.4m for the three months to the end of June, compared to $26.5m a year earlier. Dean Foods' operating income stood at $72.8m, versus $56.7m a year ago.

However, Dean Foods' profitability was helped by a fall in the cost of sales as its net sales slid 8.2% year-on-year to $1.85bn.

The second-quarter 2016 average Class I Mover, a measure of raw milk costs, was $13.53 per hundred-weight, down nearly 15% from the second quarter of 2015, Dean Foods said.

For the third quarter, the average Class I Mover is forecast at $15.00 per hundred-weight, which Dean Foods represents an approximately 11% increase sequentially but around 8% down year-over-year.

CEO Gregg Tanner said: "Our second-quarter performance demonstrates our continued focus on driving strong operational and financial performance across all functions."

Shares in Dean Foods were down 5.18% at $17.84 at 11:21 ET.

Sanford Bernstein analyst Alexia Howard said: "The elephant in the room remains the overhang from Walmart's announcement in the spring that it will be opening a new milk plant in Indiana in the summer of 2017. This is likely to
reduce Dean Foods' volume by ~3% nationally. Although the company has said that this move should have no impact on the company's financials - by claiming that it will downsize plant capacity and headcount in the region accordingly - investors worry that if Walmart opts to enter the milk manufacturing business more broadly, this could create a challenging competitive dynamic for Dean Foods further down the road.

"We believe that such a decision is unlikely to be made before the end of 2017 and if Walmart behaves rationally, then spending further money in a low-margin, low-return business like milk seems unlikely."