US dairy giant Dean Foods plans to speed-up the efficiency-driven closure of up to 15% of its processing facilities in an effort to offset the impact of increasing market competition and its falling share of fluid milk sales in the country.
Yesterday, the Dallas-based dairy processor reported net loss on an attributable basis of $56.9m for the three months ended 30 June 2013 – compared with profit of $56.2m recorded in the same period of 2012.
Dean Foods has attributed the lackluster result to a decline in its share of US fluid milk sales volume, which fell from 37.8% in Q1 2013 to 36.4% in the second quarter of the year. The company estimates that “more than two-thirds of the decline in Dean Foods’ fluid milk volumes is attributable to the transition of volume to other providers related to previously disclosed business losses.”
Speaking on a conference call with analysts yesterday, Dean Foods CEO Gregg Tanner said the company intends to speed up its efficiency efforts to offset the impact of its falling fluid milk sales volume.
“Our focus remains clear; we continue to work to extend our competitive advantage, beginning with costs and efficiency,” said Tanner.
Th company claims to be making “solid progress” against its $120m cost savings target for 2013, including plans to close between eight and 12 (10% and 15%) processing facilities across the US.
It has so far closed or announced the closure of eight plants, including its Shenandoah’s Pride plant in Springfield, Virginia, and its Oak Farms processing facility in Shreveport, Louisiana.
“We have accelerated these efforts, including our plans to close 10% and 15% of the plants in our network. We expect these efforts to offset the volume deleverage we are experiencing and to further differentiate us from our competitive set from an efficiency and productivity perspective," said Tanner.
“Our advantaged cost position is important as we work to return to our long history of share gains. I expect these category share gains, combined with our portfolio of strong brands, a significantly strengthened balance sheet, industry-leading pricing tools and our uncompromising commitment to quality, safety and service to provide the platform for our success going forward.”
Despite the “challenging environment” Dean Foods currently finds itself in, it believes that “the momentum” created by its cost reduction activities will allow it to deliver “solid full year results.”
“Overall, for the year, we continue to expect to substantially offset the financial impact of the lower volumes through accelerated cost reduction and productivity, resulting in a low single-digit increase in operating income from the pro forma 2012 results,” said the firm’s Q2 results statement.