Butterfat costs and competitive pressure in milk hit profits

Butterfat costs and competitive pressure in milk hit profits

US dairy giant Dean Foods has seen its third-quarter profits halve as rising butterfat costs and competition from own label hit its liquid milk business.

Dean Foods, which also announced that its CFO Jack Callahan is to leave the business, said today (9 November) that net income during the three months to the end of September reached US$24.3m - against $49.7m a year earlier.

The company said lower profits from its Fresh Dairy Direct-Morningstar arm and higher interest costs had outweighed improved results from value-added division WhiteWave-Alpro.

Throughout the year, Dean Foods has warned repeatedly of tough trading conditions due to pressure from private label. During this quarter, the company was hit by higher butterfat costs.

"These results are clearly disappointing for us and reflect continued significant challenges in our largest business, Fresh Dairy Direct-Morningstar," said chairman and CEO Gregg Engles.

"Despite our poor consolidated performance, WhiteWave-Alpro continued to perform exceptionally well and delivered significant top and bottom line growth. However, given the relative size of the business, it was not enough to offset substantially weaker results in our Fresh Dairy Direct-Morningstar segment. In addition to ongoing adverse conditions in the conventional milk business, weak consumer spending led to soft volumes in conventional fluid milk and other beverage and cultured products within our Fresh Dairy Direct-Morningstar business. Our results were also impacted by much higher than anticipated butterfat costs."

Engles added: "In response to a weak trading environment and our on-going poor performance, we continue to take aggressive steps to improve our results, including accelerated cost reductions and the recent realignment of our management and organisational structure."

Dean Foods' net sales, however, did rise 10.5% to $3.05bn during the third quarter. The company said sales were boosted by the "pass-through of higher average dairy commodity costs" to its customers.

Click here for the full statement from Dean Foods.