Dean Foods second-quarter net income drops 30 pct, offers 3Q outlook below Street

Dean Foods 2Q net income drops 30 percent

DALLAS — Dean Foods Co.’s second-quarter net income fell 30 percent and the nation’s largest milk maker offered third-quarter guidance that could fall below estimates because it expects the competition eating into its sales to continue.

Shares slumped on the news, falling $1.10, or 9.4 percent, to $10.64 on heavy volume in afternoon trading.

The company’s shares have been tumbling since at least May, when it reported another drop in net income on steep price competition and suspended its 2010 guidance.

The milk producer’s private label business has been hurt by competitors cutting prices to appeal to budget-conscious shoppers. People have been trading down to less-expensive off-branded products to save money as they try to stretch their budgets.

The same factors weighed again on the three-month period ending June 30. The company earned $44.8 million, or 25 cents per share, that’s down from earnings of $62.3 million, or 38 cents per share last year.

Revenue rose 10.7 percent to $2.95 billion.

Analysts expected earnings per share of 25 cents on revenue of $3 billion, according to Thomson Reuters.

Shoppers aren’t making enough money and are facing tight budgets, CEO Gregg Engles said.

“Their economic anxiety is reflected in a highly promotional retail environment for private milk,” he said, adding that is what is hurting results.

Pricing for store-brand milk is below historic levels and the gap between major brands and store brands is growing, which is making shoppers keep buying the less-expensive options.

Operating income fell 28 percent for the Fresh Dairy Direct-Morningstar unit, which markets milk, creamer and cultured dairy products under more than 50 local and regional dairy brands as well as private labels.

But operating income at the company’s WhiteWave-Alpro segment, which sells organic products, ice creams, and soy- and other plant-based beverages, rose 18 percent.

Dean said in May it would only offer guidance for upcoming quarters, rather than for years. On Tuesday it said it expects third-quarter net income of 23 cents to 28 cents per share excluding 6 cents per share in interest expense. Analysts expect net income of about 26 cents per share. Analysts estimates typically exclude one-time items.

Standard & Poor’s analyst Tom Graves cut his fiscal 2010 earnings per share estimate to 98 cents from $1.07. On average analysts expect $1.01 per share. Graves reiterated his “Strong Sell” on the stock and $10 share price, saying price competition will hurt profits.