In Q3 2017 Dean Foods posted earnings of 20 cents per share, $1.94bn in total revenue and a net income gain of $1.4m. But in the Q3 2018 results, that fell to an adjusted loss of 28 cents per share, $1.89bn in total revenue and a net income loss of $26.4m.
Dean Foods attributed the disappointing quarter to the company-wide restructuring program it is undertaking, as well as changing consumer behavior and low volume.
Ralph P. Scozzafava, CEO at Dean Foods, said, “We embarked on an aggressive enterprise-wide productivity plan in the beginning of this year. The program is a major reset for Dean Foods aimed at addressing our cost structure, while simultaneously adding critical capabilities into our business.”
Unprecedented closure activity
As a part of the program, Dean Foods shuttered and consolidated seven plants in a time frame of just six weeks, redistributing the volume to 23 other plant locations. Scozzafava said that this ‘level of activity’ was ‘unprecedented’ for the company, but necessary to achieve the run rate benefits.
“It was an extremely challenging quarter as we embarked on a compressed timeline to execute seven plant closures. We incurred significant transitory costs related to ramping up receiving plant locations, while also experiencing deleverage as volume exited the closing facilities,” Scozzafava said.
The total company operating expenses increased by $8m from Q3 2017, and Dean Foods expects the residual start-up and transitory costs to continue into the fourth quarter. It also cited higher fuel and freight inflation and increased advertising spending as contributing factors.
Dean Foods also reported that the fluid milk category continues to decline in volume, with Q3 down roughly 2% year-over-year, though it’s still the fifth largest edible category across all outlets. US households reportedly consume 33 gallons of milk on average per year.
The Dean Foods ice cream category is maintaining flat year-to-date, and the team is shifting focus to more premium offerings and products offered in pint sizes.
“We know innovation is key to driving our branded business and we're constantly looking at ways that we can introduce new products, combined with innovative ways in how we go to market and support our business,” Scozzafava said.