Dean Foods shares tumble as costs drag down 4th-quarter profit, 1st-quarter comps challenging

Dean Foods 4Q profit falls on higher expenses

DALLAS — Shares of Dean Foods Co. tumbled 14 percent Wednesday after the nation’s biggest dairy company said higher operating costs dragged down its fourth-quarter profit and issued a weak forecast for the coming year.

Dean Foods said its divisions did not perform up to expectations during the quarter, with Fresh Dairy Direct pressured by increased competition and rising commodity costs. Its Morningstar unit was hurt by softer volumes, higher commodity costs and a charge related to a renegotiated contract. Overall, operating costs and expenses grew to $669.4 million from $602 million.

Shares tumbled $2.44 to $15.20 in afternoon trading.

Dean Foods earnings fell to $50.3 million, or 27 cents per share, from $66.4 million, or 42 cents per share, a year earlier. Excluding charges related to plant closings and other one-time items, adjusted profit totaled 31 cents per share. That missed analysts’ average estimate of 37 cents per share, according to a Thomson Reuters poll.

Sales for the three months ended Dec. 31 edged down to $3 billion from $3.08 billion partly on lower dairy prices but managed to beat Wall Street’s $2.95 billion forecast. The company said its creamers business boosted sales on strong performance in its International Delight line. While the organic milk category remained sluggish, its Horizon Organic brand garnered more market share.

For the full year, Dean Foods earned $240.3 million, or $1.38 per share, up from $183.8 million, or $1.20 per share, in the prior year. Annual sales declined to $11.16 billion from $12.45 billion.

“Looking ahead at our expectations for 2010, the first quarter presents a challenging overlap,” said Chief Financial Officer Jack Callahan. “The first quarter of 2009 was the strongest overall performance in our company’s history and benefitted from a lower share count.”

Dean Foods forecast first-quarter adjusted earnings between 25 cents and 30 cents per share — well below analysts’ average estimate of 40 cents per share. It said it expects results to improve during the latter half of the year as commodity pressures ease, and is targeting full-year adjusted earnings in a range of $1.54 to $1.64 per share. That’s still below analysts’ $1.69-per-share projection.

Dean Foods is facing an antitrust lawsuit filed by the Justice Department last month that alleges it purchased a smaller dairy company in Wisconsin to quash competition and drive up milk prices.