Shares in Dean Foods slumped 13% to their lowest for more than a year after the dairy giant acknowledged it had performed "below our expectations" in the last three months of 2009 and disappointed investors over its forecasts for 2010.
The group, America's largest dairy operator, said that earnings fell by nearly one-quarter to $50.3m in for the quarter, as it caught between a drive by supermarkets for cost cuts at a time when it was more for its milk.
The result, equivalent to $0.31 on an underlying basis, fell short of Wall Street forecasts of $0.37-a-share earnings.
And Dean braced investors for further disappointment to come, forecasting earnings of $0.25-0.30 a share for the first three months of 2010.
'Disappointing'
While analysts had been prepared for some fall from the $0.52 a share achieved in the first three months of 2009, a quarter Dean termed the strongest in its 75-year history, they had pencilled in a drop to only $0.40 a share.
The results were termed "disappointing" by Deutsche Bank analyst Eric Katzman, although he maintained his "buy" rating on the stock, viewing it cheap on valuation grounds.
The shares closed at $15.19 in New York, their lowest since December 2008, representing a slide of 13.9% on the day.
The slump wiped $440m from the company's stockmarket value.
Higher milk price
Gregg Engles, the Dean Foods chief executive, said the group's fourth quarter performance was "below our expectations".
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Fall and rise of Dean Foods' milk costs (Class 1 Mover)
Q4 2009: $13.07 per hundredweight
Q3 2009: $10.41 per hundredweight
Q2 2009: $10.47 per hundredweight
Q1 2009: $11.96 per hundredweight
Q4 2008: $16.10 per hundredweight
Source: Dean Foods |
"As the year came to a close, several of our businesses fell short of expectations," he added.
The pressure from supermarkets had become "more pronounced" in December and late November, curbing takings at the group's fresh dairy division at a time when it was paying more for milk.
The price of the Class I Mover milk Dean uses as its benchmark was, at $13.07 a hundredweight, 26% higher in the last three months of 2009 than in the previous quarter.
Divisional profits fell by 12% to $146.5m, year on year.
'Sluggish' organic milk
At the processed dairy division, operating profits sank 12% to $61, despite contributions from Alpro, the European soy foods business bought last summer.
Profitability suffered from "volume softness" of products sold by the Morningstar unit, which serves restaurant chains such as McDonald's and makes own-brand products for supermarkets such as Wal-Mart.
Profits at the WhiteWave business were held back by extra spending on brands such as International Delight, Silk and Rachel's, the US and UK yoghurt label.
"The organic milk category remains sluggish," Dean added, noting that its Horizon brand had increased market share with flat sales.
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