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Lowered demand for milk hurts Dean Foods’ Q4, but focus on ice cream melts away fears for 2017

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Mary Ellen Shoup

By Mary Ellen Shoup+

16-Feb-2017
Last updated on 17-Feb-2017 at 16:57 GMT2017-02-17T16:57:11Z

Dean Foods saw declines in fluid milk sales in 2016, and the company is responding by zeroing in on its ice cream portfolio.
Dean Foods saw declines in fluid milk sales in 2016, and the company is responding by zeroing in on its ice cream portfolio.

Dean Foods saw an 0.8% decline in fluid milk volume sales during Q4 and a 2.1% decrease for the full-year 2016, mirroring a similar trend reported by the USDA, which showed a 1.25% decline in volumes of fluid milk during the fourth quarter of 2016.

For the full-year of 2016, Dean Foods registered $7.7bn in revenue, down from $8.1bn in 2015. The price for raw milk also decreased in the fourth quarter by roughly 6% compared to the previous quarter.

Flavored milk outperforms regular milk

While milk lagged in volume sales, one bright spot for the company was the performance of its flavored milk portfolio.

Dean Foods saw an improvement in its flavored milk business in 2016, which grew 6% year-on-year, mostly driven by private label products. However, the company’s TrueMoo brand remains the number one flavored milk brand in the category, growing in shipment value for the year.

Organic Valley partnership to pay off in 2018

Dean Foods is also anticipating growth from its partnership with Organic Valley , formed in November 2016, but has stated the company will not see much of a shift in earnings until 2018.

“Due to the nature of the ramp-up, earnings accretion in 2017 is expected to be fairly minimal. But we are excited about the long-term potential for growing starting in 2018 and beyond,” Dean Foods chief executive officer, Ralph P. Scozzafava said.

“For Dean Foods, this brings a strong organic brand to our existing portfolio of category-leading brands and a reliable supply of organic milk and new channels for profitable growth for our business,” Scozzafava said.

Expanding into other areas

In an effort to diversify its product offers, Dean Foods said it is continuing to invest in other categories.

“Our brand growth isn't just about milk. It's also about growth in adjacent categories and segments,” Scozzafava said during the Q4 earnings call.

Dean Foods will continue to prioritize its presence in the ice cream market, which experienced an increase of 13% driven primarily by its acquisition of Friendly’s , which was finalized in June 2016. Excluding Friendly’s, the company’s base ice cream business maintained its volume, growing nearly 1% in 2016 compared to 2015.

To further bolster its ice cream market presence, a series of new flavors and products including the Big Chipper Sandwich under its Mayfield and Dean’s brands will be launched in 2016. Both brands will also undergo a brand refresh and will expand their geographic footprint.

“When you pair our branded portfolio with our strong private label offerings, we have a meaningful presence in the ice cream category and ample opportunity to grow from here,” Scozzafava said.

The company has also entered the ready-to-drink coffee space with its Caribou Coffee line, and said it will continue to look for new opportunities to diversify its product offerings.

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