Dean Foods says dairy environment “extreme”

Unprecedented volatility and declining milk volumes caused leading dairy supplier Dean Foods to report a second quarter loss and suspend full year guidance.

Sales increased to 9% to $2.4 billion, but the company reported an adjusted loss of $13 million, or 14 cents a share, compared to a prior year adjusted profit of $24 million, or 26 cents a share.

"The second quarter was even more challenging than we had originally anticipated. This is by far the most difficult operating environment in the history of the company, reinforcing the importance of the initiatives we have underway," said Gregg Tanner, Dean Foods CEO.

One of the company’s key initiatives involved the closure of plants to reduce expenses. A year ago, Dean Foods announced plans to close between eight and 12 plants to reduce its capacity by 10% to 15%. The closure of four plants in the second quarter enabled the company to hit the high end of the targeted range with a total of 12 closures in little more than a year.

The expense reduction effort is occurring against a backdrop of what CFO Chris Bellairs characterized as unprecedented challenges.

“As a result of the extreme dairy commodity environment, we face unprecedented challenges, including softening category volumes, mix shift out of our brands and significant cost friction,” Bellairs said.

Dean Foods also said it experienced volume pressures due to a decline at one major customer that implemented a request for proposal process and another customer’s decision to vertically integrate milk production.

"The balance of the year appears rocky, with a continued unpredictable and volatile dairy commodity environment. That makes it difficult to provide guidance beyond the immediate quarter," said CEO Tanner. “While we hope to see a more positive environment later in the year, the uncertainty surrounding whether or when that will occur leads us to withdraw our full year guidance for the present time."

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