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Dean Foods seeks buyer for Morningstar

By Elaine WATSON , 26-Sep-2012

Dallas-based dairy giant Dean Foods is inviting potential buyers to cast a slide rule over its Morningstar warehouse delivery business - the smallest of its three divisions - as it seeks to reduce its debt pile.

In a statement issued afterReuters reported bosses had hired investment bank Evercore Partners to pitch the Morningstar business to interested parties , the company confirmed it had “recently decided to explore a transaction that may result in the sale of the Morningstar business”.

It added: “The company has not yet identified a buyer for Morningstar, but believes the business possesses an attractive portfolio in a growing marketplace and a top-notch management team.

“The company only intends to sell the Morningstar business if it can do so in a transaction that maximizes shareholder value and helps ensure the future success of the business.”

The move comes a month after Dean announced plans to spin off 20% of its fast-growing WhiteWave-Alpro unit in an IPO in a bid to reduce its debt.   

Morningstar reported robust volume growth in Q2 

Morningstar - a warehouse delivery dairy business that sells dairy products to retailers and foodservice providers - turned over $1.3bn in 2011, roughly 10% of Dean Foods' $13.1bn total sales, and had attracted interested mostly from private equity buyers, unnamed sources told Reuters.

Speaking to analysts and investors on the firm’s Q2 earnings call last month, CEO Gregg Engles said Morningstar posted 10% volume growth in the three months to June 30, driven by strong performances in ice cream mix and iced coffee products and revitalized sales of sour cream to foodservice customers.

He added: “With product and packaging innovation and a new pricing architecture, our Morningstar team has delivered strong and accelerating double-digit growth in sour cream in the food service channel during the first half.

“Robust growth across the Morningstar business resulted in mid-teens increase in volume in the food service channel and an increase of high single digits at retail.”

Q2 net sales were flat vs the same period last year at $345m as ticket prices dropped reflecting soft commodity prices, but gross profits rose 13% to $62m, he said.

“Morningstar carries significant momentum into the second half of the year… Solid customer growth, new product innovations and a focused approach are expected to drive continued success for the segment over the balance of the year, resulting in mid-teens full year operating income growth.”

Rising corn prices does not necessarily mean dairy prices will surge

While bosses were watching rising corn and feed prices, the impact on dairy prices could be “less extreme than some analysts predict”, added Engles, citing strong domestic milk production, cheap and plentiful alfalfa and hay (which supports milk supply growth) and “tepid domestic demand, resulting in relatively high inventory levels for storable dairy commodities”.

Meanwhile, a strengthening dollar reduced US price competitiveness on the global market, particularly versus the euro, likely impacting export activity in the back half of the year, he predicted.

Where does Morningstar fit into Dean Foods?

Dean Foods operates three divisions:

Fresh Dairy Direct - one of the nation's largest processors and direct-to-store distributors of liquid milk marketed under more than 50 local and regional dairy brands and private labels. It also distributes ice cream, cultured products, juices, teas and bottled water.

WhiteWave-Alpro - which includes the Alpro, Silk, Provamel, Horizon Organic, International Delight and LAND O'LAKES brands.  Just two years since its launch, dairy alternative brand PureAlmond has reached more than half the size of the Silk soy business, said Engles last month.

“Strong growth in Silk PureAlmond and PureCoconut products drove plant-based food and beverage sales growth of over 20% in Q2.”

Morningstar - a warehouse delivery dairy business that sells dairy products, ice cream mixes, coffee creamers, aerosol whipped toppings, milks and other beverages to retailers and foodservice providers.

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