Dean Foods Cuts Forecast as Raw Milk Prices Squeeze Margins

May 08, 2014 4:45 pm ET

(Updates with closing share price in last paragraph.)

May 8 (Bloomberg) -- Dean Foods Co., the largest U.S. dairy processor, cut its full-year earnings forecast after higher raw milk costs squeezed margins and winter weather disrupted deliveries to schools.

Earnings excluding one-time items will be at least 60 cents a share, the Dallas-based company said today in a statement, down from a February forecast of 73 cents to 86 cents. The shares dropped the most in almost three months.

The revised outlook followed a surprise first-quarter loss. Raw milk costs were at a record in March and were up 22 percent in the quarter from a year earlier, Dean said. Prices surged amid drought in California and increasing demand from China. Dean, which lost a contract with Wal-Mart Stores Inc. last year, saw milk volumes dropped 6.7 percent in the quarter.

“Historically high raw milk prices continue to be an undeniable headwind,” Chief Executive Officer Gregg Tanner said today on a conference call. “The consensus view of the dairy commodity outlook for 2014 appeared to be significantly more challenging than expected.”

The first-quarter net loss was 9 cents a share, compared with net income of $5.30 a year earlier. The loss from continuing operations excluding one-time items was 5 cents. The average of 11 analysts’ estimates compiled by Bloomberg was for earnings of 1 cent.

Sales rose 2.1 percent to $2.34 billion, exceeding the $2.27 billion average estimate.

The shares dropped 5.2 percent to $14.55 in New York, the biggest drop since Feb. 11.