- Dean Foods announced Monday night it is acquiring the manufacturing and retail ice cream business of Friendly's Ice Cream from Friendly's Restaurants, a Northeast U.S.-based ice cream and dining brand, for $155 million in cash.
- The acquisition aligns with Dean Foods' strategy of shifting its portfolio toward branded milk and ice cream products, which are more profitable.
- Dean Foods has sustained profitability even with a 3.2% volume decline for raw milk, reporting Tuesday morning quarterly profit of $39 million, or $0.43 per share, compared with a loss of $74 million, or $0.78 per share, in the prior year. Revenue fell 8.4% to $1.88 billion.
Lower milk costs are boosting Dean Foods' profit margins, with raw milk costs falling 14% year over year in this past quarter. These lower costs have offset the top line challenges the company faces as cow's milk demand declines. This is in lieu of increased demand for dairy alternatives like almond milk and soy milk, which have siphoned off traditional cow's milk sales.
Even within U.S. fluid milk market, Dean Foods' share has decreased by 0.70 percentage points to 34.6%. And though Dean Foods doesn't anticipate a significant impact, Wal-Mart's new dairy processing plant in Indiana is expected to result in a loss of about 100 million gallons of low-margin, private label fluid milk volume for Dean Foods beginning next year.
Lower milk costs aren't permanent, and once those costs bounce back, Dean Foods will feel the weight of its top line dips. The company has decided to shift its focus to more profitable segments, such as branded milk, including TruMoo and DairyPure, which the company launched just over a year ago. Dean Foods' new acquisition, Friendly's Ice Cream, reported $166 million in net sales in 2015 and is currently distributed in more than 8,000 retailers.