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Declining raw milk prices support ‘strong’ Dean Foods Q1 results

By Mark Astley , 10-May-2012

US processor Dean Foods has reported 'stronger than forecasted' results for the first quarter of 2012 – citing the declining price of raw milk and solid growth across its segments as defining factors.

The Dallas-based processor and distributor (2011 turnover: $13bn) has attributed its latest results to an 8% decrease in raw milk prices over the last two quarters, and the failure of many retailers to lower private label milk prices.

A recent global rise in raw milk prices has eased over the last two quarters, allowing for a significant increase in fluid milk sales margins for Dean Foods’ Fresh Dairy Direct (FDD) segment, which recorded 18% growth in Q1 operating income.

Elsewhere, the company attributed the results to stronger-than-anticipated growth across its other operating segments – WhiteWave-Alpro and Morningstar Foods.

The company recorded first quarter total net sales of $3.2bn and net income of $37.9m for Q1 2012 – an increase on the $25.3m recorded in Q1 2011.

Increased milk margin

“As raw milk prices declined in Q4 of 2011 and again in Q1, retailers have been slow to reflect this in their private label pricing. The result has been an increase of more than $0.30 in the margin over milk,” said Dean Foods chairman and CEO Greg Engles.

“This margin, which measures the spread between the cost of raw milk and the retail price of private label milk, is now back to levels not seen since 2009.”

This favourable commodity price has helped the firm’s FDD segment achieve gross profit of $522m – a 1% increase on Q1 2011.

“Gross profits per gallon increased 2% from year ago, an important factor in improving our overall profitability per gallon,” said Engles.

“We expect this trend to continue in Q2 and forecast an average Class I price of approximately $15.50, an 11% sequential decline from Q1. On a year-over-year basis, this would represent a decline of greater than 20%,” he said.

Recent challenges

The company has also cited strong growth from its WhiteWave-Alpro, which produces and distributes an array of branded dairy, plant-based food and beverages and coffee creamers.

The segment recorded a net sales increase of 13% on the same period of 2011, hitting $571m.

The company’s Morningstar segment, which produces and sells traditional specialty dairy items, including cultured dairy products, ice cream mixes, coffee creamers, aerosol whipped creams and value-added milks, recorded 13% operating income growth for the quarter.

“We delivered solid growth in all three of our operating segments, and I firmly believe we’re on a path for a strong year,” added Engles.

“While we are not prepared to declare that our recent challenges are completely behind us, we are pleased that our strong actions to control costs over the past several quarters, our focus on the fundamentals at FDD and our continued investments in WhiteWave-Alpro are currently bearing fruit.”

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