- Dean Foods reported second-quarter earnings Monday, including an 8% dip in net sales to $1.85 billion from $2.01 billion last year, though that total was in line with analysts' estimates. Total volume declined 3.2% across all products.
- Adjusted diluted earnings per share increased 8.9% for the quarter to $0.38 per share from $0.33 per share last year, missing analysts' expectations by $0.02. GAAP net income totaled $33 million, a 22% jump over $27 million last year.
- Raw milk costs declined 15% to $13.53 per hundred-weight, a 7% sequential decrease from Q1 2016 and an almost 15% decline year over year.
Dean Foods — and other conventional dairy producers — won't be able to depend on low raw milk costs in perpetuity. Already, the company said it expects milk costs to rise to $15 per hundred-weight for the third quarter, an 11% increase over the most recent quarter, though that still remains 8% below milk costs year over year.
Volatility in milk costs and prices is common, with prices having been even lower than they currently are in 2006 and 2009. That volatility is due in part to fluctuating demand for liquid milk, which nowadays is only sold as milk or cream about one-quarter of the time, NPR reported. The rest of the time, manufacturers process milk into other products, such as cheese, yogurt and ice cream or dairy byproducts like whey concentrate and special high-value proteins.
Dean Foods is waking up to this decline in demand and seeks to reinvigorate consistently declining sales. The company announced it completed its acquisition of Friendly's ice cream business in June, which will begin impacting revenue in the next reported quarter.
But Dean Foods hasn't given up on milk altogether. Neither have consumers, who appear to be shifting toward premium dairy and plant-based dairy alternatives. In response, Dean Foods debuted its national DairyPure brand last year. Branded milk, like ice cream, tends to be a more profitable category. But pricing and marketing strategies will be critical here to expand branded milk's impact on both profitability and Dean Foods' sagging top line.
In Rabobank's recent annual dairy industry ranking report, Dean Foods fell to No. 10 from its No. 9 ranking last year. Dean Foods also has other challenges to consider, such as Danone's purchase of plant-based dairy leader WhiteWave Foods, which means a larger distribution platform for a category that is leaching conventional dairy's market share.
Also, Wal-Mart is opening its own dairy processing plant, which Dean Foods said it expects will result in a loss of about 100 million gallons of low-margin, private-label fluid milk volume. The company said it's not concerned about the impact, as the volumes lost to the new plant won't impact its branded milk, nonfluid milk products or products like ice cream.