Dive Brief:
-
First-quarter results for Dean Foods showed the dairy producer's net sales dropped 0.8% to $1.98 billion, compared to $1.99 billion for the year-ago period. The Dallas-based company had a net loss of $265,000 for the first quarter, compared to a net profit of $32.8 million for the same period in 2017. Both Dean's net sales and its earnings per share of 14 cents beat analysts' expectations, according to MarketWatch.
-
Dean reported its operating costs and expenses fell 5.5% to $433.2 million and that raw milk costs dropped 16%. The company said it was focused on "right-sizing" its network to better match volume, and that plans were in place to "mitigate expected headwinds in non-dairy input costs." It also reaffirmed full-year adjusted diluted earnings per share of 55 cents to 80 cents.
-
"Our volume and mix were in-line with our expectations and the traction that we're getting across our enterprise-wide cost productivity plan is ramping up. We took important initial steps to lower our cost base. The initiatives we executed late last year and in the first quarter of 2018 are clearly working as evidenced by the benefits reading through in our results," CEO Ralph Scozzafava said in a release.
Dive Insight:
This latest earnings report shows Dean's woes continue, as the producer reflects the dairy industry's recent slump as consumers continue to seek out plant-based products. Non-dairy milk sales in the U.S. have increased 61% during the past five years and were estimated to reach $2.11 billion in 2017. Meanwhile, overall sales in the dairy milk category have dropped about 15% since 2012, falling to an estimated $16.12 billion in 2017.
Dean's dairy products — DairyPure, TruMoo, Alta Dena and Land O'Lakes among them — are also higher-quality and have typically been at a higher price point. This is not an asset in today's market, particularly when huge retailers such as Walmart and Kroger slash prices in cost competition.
Walmart opened its own dairy processing plant in Indiana this year, cutting the amount of milk it had sourced from Dean. As result, Dean is terminating contracts with more than 100 dairy operations in eight states.
Dean has been trying to diversify its portfolio outside of dairy. A year ago, the company bought a minority stake in Good Karma Foods, a maker of non-dairy milk and yogurt. Last June, it purchased Uncle Matt's Organic, which manufactures probiotic-infused juices and fruit-infused waters. It's hard to tell whether those two investments have yet helped the bottom line.
The company appears to holding steady through cost-cutting initiatives, although it will have to do more to bring things around. Scozzafava said in the earnings report that the company has been successful in cutting administrative costs, but more work remains to be done regarding its enterprise-wide productivity plan.
"We will now begin the next phase by right-sizing our network to better match volume," he said, although no details were given about plant closings or any layoffs of its approximately 16,000 workers.