Sharp loss in profit forces Dean Foods to consider sale

By Beth Newhart

- Last updated on GMT

Dean Foods plans to invest in its core capabilities, technology, infrastructure, people and systems.
Dean Foods plans to invest in its core capabilities, technology, infrastructure, people and systems.

Related tags Dean foods financial report Mergers and acquisitions

A disappointing fourth quarter for Dean Foods rounded out an under-performing 2018, causing the dairy giant to explore alternatives in its ‘business transformation.’ It is considering a joint venture, business combination or even a sale.

When comparing both fourth quarter numbers and full year numbers between 2017 and 2018, Dean Foods’ total sales were flat, and only dipped slightly. But its operating costs jumped up considerably in 2018, leading to big losses.

Facility closing and reorganization costs and impairment of goodwill and long-lived assets were behind Dean’s long bill last year. It ended 2018 with a net income loss of $326.9m, compared to a net income profit of $61.6m in 2017.

Dean Foods announced it would begin to “explore and evaluate potential strategic alternatives to enhance shareholder value,”​ as a result of its performance in 2018. It said it will look into several options for the company, including:

“Continuing to execute on the company’s business plan including an increased focus on certain standalone strategic initiatives, the disposition of certain assets, the formation of a joint venture, a strategic business combination, a transaction that results in private ownership or a sale of the company.”

Dean Foods hasn’t revealed a timeline, and also said it doesn’t plan to provide any more updates until it’s deemed necessary.

Ralph Scozzafava, CEO of Dean Foods, said, "Our 2018 financial results reflect volume deleverage from certain customers exiting our business coupled with significant inflation in fuel, freight and resin costs.

“While we made significant progress executing our enterprise-wide cost productivity plan, the cost savings were mitigated by incremental transitory costs associated with a recent comprehensive plant consolidation. Despite these challenges, we continued to generate positive free cash flow from operations in 2018."

Dean Foods is the largest processor and direct-to-store distributor of milk and other dairy products in the US, but all major brands have been facing increasing competition from plant-based dairy alternatives in the last few years.

“We are taking vital, transformative actions to maximize the benefits of our scale and position the company for the long term, including implementing an enterprise-wide cost productivity plan and investing in core capabilities, technology, infrastructure, people and systems,”​ Scozzafava said.

“As we seek to accelerate our business transformation and enhance shareholder value, the Board has initiated a review of a range of potential strategic alternatives to best position the company for the future.”

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