Food Business News - August 22, 2017 - 12
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Private label pricing, Wal-Mart
challenge Dean Foods
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satisfied with our performance and are
determined to improve our execution. We
are accelerating and expanding an aggressive set of commercial and cost productivity initiatives to address volume and
mix. We expect these actions will better
position our company for the future."
Net income for the quarter ended
June 30 was $17,647,000, equal to 19c
per share on the common stock, down
from the same period of the previous
year when earnings totaled $33,371,000,
equal to 37c per share.
Sales for the quarter rose to
$1,926,722,000 from $1,848,788,000 the
During the quarter, Dean Foods
sold 615 million gallons of milk, a nearly
3% year-over-year decline compared to
the same period of the previous year, according to the company. Making matters
more difficult was the fact the company's
branded white milk volume in all channels declined nearly 6% year-over-year
vs. private label.
"Volume softness continues to
weigh on the broader food industry, and
the emphasis of specific retailers on
private label within certain segments
showed growth in Q2," Mr. Scozzafava
said. "For Dean Foods, this created a
challenging environment on both volume and mix."
Adding to the company's troubles
is the loss of some of its private label
Food Business News
"As milk production continues to
grow across many areas of the country,
we're seeing surplus volume and supply
that's changing some recent pricing
dynamics in the category, driving aggressive pricing that we believe just isn't
sustainable long term," Mr. Scozzafava
said. "For Dean Foods, this has resulted
in fluid milk volume losses that will
Ralph Scozzafava, Dean Foods Co.
contribute to a higher-than-planned
year-over-year decline in total volume.
For at least the balance of the year, we
expect total volume (to) decline in the
"However, we're actively pursuing
new volume within the normal flow of
new business opportunities. We recently
won a significant private label bid with a
major customer and expect that volume
Dean Foods may lose
approximately 90 million to
95 million gallons of fluid milk
volume in 2018 and 2019 as
Wal-Mart scales up its Indiana processing plant.
to come on-line in our plants later this
year. The benefit of that volume will fall
predominantly in 2018."
Offsetting the benefit may be the
loss of approximately 90 million to 95
million gallons of fluid milk volume in
2018 and 2019 as Wal-Mart begins scaling
up production at the Indiana plant.
"Dialogue between ourselves and
Wal-Mart is ongoing, and we're actively
taking steps to optimize our network
to mitigate the impact of the volume
losses," Mr. Scozzafava said. "However,
given the volume degradation we've experienced this year, we may be unable to
sufficiently reduce our costs to mitigate
the negative fi nancial impact of the WalMart volume loss. More to come on this
as we move forward."
Management's strategy to counter
the difficult operating environment is to
take additional costs out of the company's sales and supply chain.
"Our supply chain organization continues to drive ways out of the system in
addition to driving increased efficiencies
within our plants," Mr. Scozzafava said.
"Overall, we are on track to deliver our
productivity target of $80 million to $100
million in savings in 2017."
The company announced plans
to close a fluid milk processing plant
in Richmond, Va., a few days after the
Future savings may come from a
program targeting the effectiveness and
efficiency of Dean Foods' selling, general
and administrative operations.
"We're well into the design phase
across our organization and anticipate
having actionable plans in place by the
end of the third quarter," Mr. Scozzafava
said. "We're targeting a cost reduction of
$40 million to $50 million on an annual
run rate basis and expect to implement
our plans by year-end.
"I'll be in a position to speak more
about our progress on a much more detailed basis as we move through the balance of the year. I want to reinforce that
maintaining a competitive cost structure
is crucial to the ongoing success of our
company and will make us more competitive in market, too."
Dean Foods has been attempting
August 22, 2017