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Dean Foods' profit estimates down as raw-milk expenses rise
By Paula Schleis Beacon Journal business writer
Published on Wednesday, Oct 03, 2007
Dean Foods Co., the biggest U.S. dairy processor and parent of Reiter Dairy in Barberton, said it will eliminate up to 700 jobs because of record-high milk costs.
''This is by far the most difficult operating environment in the history of the company,'' Chief Executive Officer Gregg Engles said Tuesday.
The Dallas company employs 26,000 people across the country, and it's too early to say how any one plant will be affected, said Dean Foods spokeswoman Marguerite Copel. That word should come by the end of October, she said.
Reiter Dairy already lost 165 milk-processing jobs this year. In January, Dean Foods closed the plant's production facility. Reiter still employs about 65 people in sales and marketing, administration and distribution.
The latest downsizing was announced at the same time Dean Foods, which sells Land O'Lakes butter and Horizon organic milk, cut its profit estimates for the second time this year. Its full-year forecast now stands at $1.25 a share, down from $1.58.
Shares have fallen 29 percent in the past five months as global dairy output failed to keep pace with rising demand, boosting raw-milk costs for processors. The company's second-quarter profit fell 1.6 percent as higher costs eroded gains in sales, and consumers are now balking at higher prices.
Dean's stock price fell after Tuesday morning's announcement, but recovered to close at $26.41, up 12 cents on the day.
Sales ''have softened as consumers react to the record high prices,'' chief financial officer Jack Callahan said. ''We also expect the organic milk oversupply to continue to negatively affect results for the balance of this year and into at least the first half of 2008.''
Dean is ''experiencing some unfavorable mix as consumers are shifting from branded to private label in some big markets,'' Jonathan Feeney, a Wachovia Securities analyst, said in a note to investors. The company's dairy unit accounted for 87 percent of its $10.1 billion in 2006 sales.
Dairy farmers have failed to keep pace with a 3 percent increase in annual milk consumption, according to Rabobank Groep in the Netherlands, the world's biggest agricultural lender.
Reduced subsidies eliminated milk surpluses in Europe and slowed production growth in the U.S., government data show. The rally started last year after Australia reduced exports because of its worst drought in a century.
Skim-milk powder, the benchmark for world trade, has risen 77 percent this year to $2.03 a pound on the Chicago Mercantile Exchange. During the first 10 months last year, prices fell 8.7 percent. Fluid-milk futures on the Chicago exchange advanced to a record in June and have gained 50 percent this year.
Dean Foods has cut prices and boosted advertising for Horizon organic products to retain market share as competitors increase output to meet demand, Callahan said on Aug. 7. This has compounded the squeeze on the company's profitability, he said.
''Management's comments on a still-shaky organic landscape suggests more time on the sidelines is prudent,'' Wachovia's Feeney said.
The company said the elimination of about 2.6 percent of its workforce will begin immediately and probably be concluded by the end of the month. Dean Foods said it expects to take a restructuring charge in the third quarter.
Bloomberg News contributed to this story.
Dean Foods Co., the biggest U.S. dairy processor and parent of Reiter Dairy in Barberton, said it will eliminate up to 700 jobs because of record-high milk costs.
Get the full article here.
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