Shares in Dean Foods ended their run of outperformance after
the dairy group marred better-than-expected profits by revealing the loss of
part of a major supply deal, prompting it to accelerate a programme of cost
The group, America's biggest dairy company, said its
underlying earnings rose to $0.40 a share in the October-to-December period, from
$0.28 a share the year before, and above Wall Street forecasts of a
The improvement, on underlying revenues up 8.4% at $3.42bn,
reflected cost control and "strong pricing discipline" in the face of milk costs
which - at $20.32 per hundredweight, as measured by the benchmark Class 1 mover
segment – were 8% higher than a year before.
However, Dean's shares plunged nonetheless after the group
revealed it had lost "a portion of" a major supply contract - a miss which will
accelerate to "low single digits" its
decline in fluid milk volumes this year, from a rate of 0.9% in the latest quarter.
The contract,for private label supplies, was with an unnamed customer which had switched some of its volumes from a national to regional basis.
The loss of business meant that "we expect our volumes to
underperform the industry in 2013", a Dean spokesman told investors.
However, the impact of the loss on operating profits would
be "relatively modest" thanks a decision to accelerate a cost-cutting drive
which, along with a company restructuring, has helped rescue Dean from a period
of poor performance crystallised in a $2.14bn loss for 2011.
"Our primary focus for the balance of 2013 is on the
elimination of costs, particularly fixed costs," Gregg Tanner, the Dean Foods chief
"We anticipate expediting our ongoing cost reduction
efforts, including the closing of 10-15% of our plants to remove fixed costs
and eliminating a significant number of distribution routes."
Shares lose traction
Indeed, the group said that its overall operating income for
2013 looked set to see a "low-to-mid single digit increase" despite the drop in
However, its shares plunged more than 12% in early deals in New York, wiping
more than $300m from its stockmarket value, before recovering some ground to
close at $16.70, down 9.2% on the day.
The decline all but wipes out continued gains made by Dean
shares this year, following a 2012 rally which saw them soar by nearly 50%, far
outpacing a 13% rise in the S&P 500 index, as investors applauded its
efforts to hive off its WhiteWave and Morningstar businesses, slashing its debt