Dairy difficulties hamper Dean Foods' profits

By Neil Merrett

- Last updated on GMT

Related tags: Dean foods, Milk

US group Dean Foods yesterday announced plans for an immediate cut
in its workforce, after higher costs for ingredients like milk
forced it to lower its full year earnings expectations.

The company, which also operates in the UK as a producer of organic yoghurts, said it expected 600 to 700 of its staff in the US to be affected by the changes, which they hope to carry out by the end of this month. Dean Foods said it planned to encourage voluntary cuts to the workforce, though would have to take other options if the strategy failed. Group chairperson Gregg Engles said that the record costs currently facing processors on the dairy on the global commodity market had led to Dean Foods having to adapt its operations to remain profitable. "Over the past 18 months, we have been working to increase the efficiency and capability of our dairy group operations,"​ he stated. "We are now ready to move forward with a workforce reduction."​ Jack Callahan, the company's chief financial officer, said that though high prices for ingredients like milk had been expected towards the end of this year, they were now likely to continue to remain into 2008. "As a result of this extreme commodity environment, we face unprecedented cost challenges in our dairy group operations, including increased shrink costs and materially reduced profits from excess cream sales,"​ he stated. Callahan added that changing consumer demands have further added to the group's woes, as increased milk prices were being passed onto their consumers. "Sales volumes in the Dairy Group have softened as consumers react to the record high prices,"​ he stated. "We are also seeing a pronounced shift from branded products to private label in some of our regional brands."​ The group's plans to expand into the rapidly growing organic milk market had also negatively affected the operations "We also expect the organic milk oversupply to continue to negatively affect results for the balance of this year and into at least the first half of 2008, despite the recent volume acceleration of the Horizon Organic brand,"​ Callahan said.​ Despite having to reduce its workforce to ensure competitiveness in the current dairy market, Callahan said that in the long term, 2008 was expected to bring some improvements in milk prices.

Related topics: Manufacturers, Dean Foods

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