Bindl Sales



Minnesota Ag News Headlines
Dean Foods Stock Drops as Cheap Milk Takes a Toll
Minnesota Ag Connection - 08/09/2019

Dean Foods Inc. stock fell as much as 34% this past week after the company reported a quarterly loss that it blames on retailers who are discounting milk to get customers through the door.

Shares were on track to close with the biggest percentage loss since May 2010.

Chief Financial Officer Jody Macedonio said on an earnings call that the overall dairy category is down 2% annually over recent years, and the trend picked up steam in the second quarter.

"The dairy category continues to be pressured by very low retail price points on private-label milk while at the same time, accelerated dairy commodity inflation is putting additional pressure on margins," she said, according to a FactSet transcript.

Retailers are placing price promotions on milk to boost business, but Dean Foods says they're hurting themselves with the practice.

"As retailers continue to invest in private-label milk to drive foot traffic, private-label margin over milk is contracted to $1.26 in June matching a historic low," she said. "As retailers continue to fund pricing promotions to drive traffic into their stores, they're draining their own profitability. As a result, we believe these margins are unsustainable and expect it to alleviate over time."

Even more optimistically, Macedonio said that the "unsustainable" margins make Dean Foods brands "even more important to the profit pool."

Dean Foods brands include DairyPure, a white milk brand, TruMoo, a flavored milk brand, Land O'Lakes and Tuscan.

The company also noted the beverage options that customers have nowadays as competing with its dairy offerings. In a statement from the company's media relations team, Dean Foods cast a wide net, saying those alternatives include water. More specific to the milk category, consumption of plant-based milks like oat milk and almond milk has grown 6%, data shows.

"Moving forward, we'll continue to explore other initiatives including product mix opportunities to further mitigate inflationary pressure," Macedonio said.

Dean Foods also used the call to introduce Eric Beringause, the company's new chief executive, who was most recently the CEO of Gehl Foods, which produces products including pudding and tortilla chips, as well as dairy-based beverages.

Dean Foods reported a net loss that widened to $64.5 million, or 70 cents a share, from $40.1 million, or 44 cents a share, in the same period a year ago. Excluding non-recurring items, the adjusted loss per share was 36 cents, compared with the FactSet loss consensus of 13 cents a share.

Sales fell 5.5% to $1.84 billion, below the FactSet consensus of $1.88 billion.

"We are actively implementing our enterprise-wide cost productivity program to address the deleverage from the volume decline and higher dairy commodity inflation," said Macedonio in a statement. "We expect our initiatives to accelerate during the second half of this year as we continue to reset our cost base and drive supply chain productivity to be more agile and cost-efficient."

Dean Foods shares have tumbled nearly 86% over the last year while the S&P 500 index SPX, +0.08% is down 0.3% over the period.

Send this article to a friend


Other Minnesota Headlines
Ag-Bag
Osseo Plastics
Copyright 2019 - USAgNet.com. All Rights Reserved.