Dean Foods has swung to a third-quarter loss as a result of a goodwill impairment charge and flat volumes in the firm’s Fresh Dairy Direct business.
For the three months to the end of September, the company made a net loss of US$1.5bn, compared to a net income of $24m in the prior-year period. The loss was the result of a non-cash after-tax goodwill impairment charge of $1.6bn tied to the Fresh Dairy Direct business, the firm said today (9 November).
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Fresh Dairy Direct fluid milk volumes were essentially flat in the quarter, while operating income was down 18% to $95m. The drop was due to continued soft volumes in non-milk categories and pricing pressures across the portfolio, which offset the company’s cost reduction initiatives.
The company made a consolidated operating loss in the quarter totalling $1.9bn, compared to an operating income of $93m in the prior-year period.
Net sales however, climbed 9.7% to $3.4bn, boosted by the pass-through of higher dairy and overall commodity costs in the Fresh Dairy Direct unit and continued sales growth at WhiteWave-Alpro.
“Like many companies that were built through a series of acquisitions, the Fresh Dairy Direct business accumulated a large amount of goodwill on its balance sheet,” said Dean Foods’ chairman and CEO Gregg Engles. “As we’ve discussed over the past few years, changed economic conditions have resulted in increased challenges for the fresh milk processing industry. Industry-wide volume declines and price erosion have lowered the profit outlook for our fresh dairy business.”
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By GlobalDataIn the nine-month period, Dean Foods made a net loss of $1.56bn compared to a net profit of $112.2m in the comparable period last year. Operating losses amounted to $1.78bn compared to an operating profit of $337.2m last year, while sales edged up 8.8% to $9.76bn.
Looking ahead, Engles said the firm’s Fresh Dairy Direct business “continues to face a difficult volume and pricing environment”, which is expected to continue into the fourth quarter.
Nonetheless, he added that the company should benefit from a continued focus on “cost reduction across the business, moderating dairy and other commodity costs, and typical fourth quarter seasonality”.
The company is expecting fourth quarter adjusted diluted EPS to improve from third-quarter levels to between $0.20 and $0.25 per share resulting in full-year 2011 adjusted diluted EPS of between $0.69 and $0.74 per share.
