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February 12, 2014

US: Dean Foods shares sour after 2014 warning

Shares in Dean Foods tumbled yesterday after the US dairy giant warned commodity prices would weigh on the business this year.

By Dean Best

Shares in Dean Foods tumbled yesterday (11 February) after the US dairy giant warned commodity prices would weigh on the business this year.

The company’s stock closed down more than 7% after it said the “consensus” among the dairy industry was for commodity prices to be “more challenging” than previously thought.

In 2013, Dean Foods made earnings per share of US$0.86 on an adjusted basis. For 2014, it forecast a range of $0.73-0.86.

“Current dairy commodity prices have moved near or beyond all-time highs despite strong global production growth. On our last earnings conference call, we expressed a view that raw milk prices would begin to fall in the early part of 2014, before moderating and rising slightly over the back half,” CEO Gregg Tanner said.

“However, since then, raw milk prices have risen sharply driven by global demand for imported dairy products. We now expect Class I dairy commodity prices to climb throughout the majority of the first half, before flattening and declining moderately in the second half of 2014.”

Dean Foods reported a fourth-quarter loss, made after costs from the retirement of debt and a jump in its income tax bill. The fourth-quarter loss totalled $37.7m, down from a profit last year of $28.1m. 

Annual net profit in the year to 31 December surged to $813m compared to $159m in 2012, boosted by the proceeds of the sale of its Morningstar Foods division to Saputo and the disposal of shares in WhiteWave Foods. 

However, annual operating income was down on lower sales as Dean Foods lost a milk contract with an unnamed “large retailer”. 2013 operating income dropped to $131m, from $261m in the prior year. 

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