US dairy giant Dean Foods has reported better-than-expected profit for the last three months of 2012 – a result it has attributed to better “cost control and effective pricing” from its Fresh Dairy Direct business.
The Dallas-based company reported net sales of $3bn for the period. While net profit hit $37m for the three months ended 31 December 2012 - a significant improvement on the $9.8m loss reported for Q4 2011.
The firm has attributed this to strong sales growth from its WhiteWave organic foods business and the “pass-through” of higher commodity costs from its Fresh Dairy Direct business.
Dean Foods’ CEO Gregg Tanner has “commended” the performance of its surviving Fresh Dairy Direct business
“In particular, the strong pricing discipline demonstrated by our FDD field organisation in the face of a highly inflationary commodity environment resulted in significant outperformance compared to our expectations,” he said.
WhiteWave stake spin-off plans
Despite the “significant outperformance” of its expectation for the quarter, liquid milk volumes declined by 0.8%.
This decline is likely to add to existing investor concerns that Dean Foods is now too exposed volatile milk prices and competition from private label brands following the sale of its Morningstar division and the share spin-off of its WhiteWave business.
In October 2012, Dean Foods sold 12% of WhiteWave through an initial public offering (IPO).
It has now revealed plans to retain up to 19.9% of shares in the business. Dean Foods gave no reason for its decision, but re-affirmed its plans to spin-off most the majority of the business to shareholders in a tax-free transaction.
“Considerable momentum” going into 2013
Looking ahead to 2013, Dean Foods has claimed that its strong 2012 results and its “strengthened balance sheet” should provide it with “considerable momentum.”
Dean Foods added, however, that the fluid milk industry “remains competitive.”
“Building on our successful cost reduction actions in 2012, we expect to dramatically accelerate our efforts to offset the financial impact of the recently lost volumes,” said Tanner.
“Our primary focus for the balance of 2013 is on the elimination of costs, particularly fixed costs. With our significantly improved balance sheet, we anticipate expediting our on-going cost reduction efforts, including the closing of 10-15% of our plants to remove fixed costs and eliminating a significant number of distribution routes, as well as associated SG&A. As these initiatives gain traction, we expect the impact of the lost volumes on our operating income to be relatively modest.”