«Full year results are reflective of just how difficult an operating environment we’ve been in,» said Chris Bellairs, chief financial office. “But after another quarter of sequentially improving gross profit and operating income per gallon, and with what we’re seeing so far this year, we believe that we have the business headed in the right direction.»
In its quarterly investor call, Dean reported a net loss of $20 million in 2014, compared to net income of $813 million in 2013. On an adjusted basis, the company’s net loss of $13 million in 2014 compared to net income of $82 million in 2013.
Full year 2014 operating income totaled $9 million, compared to full year 2013 operating income of $131 million. Full year 2014 adjusted operating income totaled $36 million, compared to adjusted operating income of $228 million in the year-ago period.
Milk expensive
The fourth quarter 2014 average Class I Mover, a measure of Dean raw milk costs, was $23.59/cwt., an increase of 18% from the fourth quarter of 2013. The fourth quarter 2014 average was the second highest quarterly Class I Mover average in the history of the U.S. dairy industry, only 7¢ below the second quarter of 2014. The Class I Mover declined $3.95, to $18.58/cwt. in January 2015, and another $2.34, to $16.24/cwt., in February 2015.
«Fluid milk costs remained elevated during the quarter and continued to negatively impact the overall health of the category by causing volume declines beyond what we would consider a normal trajectory for the category,» said Gregg Tanner, Dean chief executive officer. «Given strong global dairy production growth, and a number of other factors, Class I Mover declines, which began in earnest in December and are continuing into early 2015, should provide some support to our category and additional tailwinds to our business.»
Dean officials said they faired better than the national average in sales volume. Total volume across all products was 683 million gallons for the fourth quarter of 2014, a 2% decline compared to total volume of 699 million gallons in the fourth quarter of 2013. For full year 2014, total volume for all products was 2.7 billion gallons, a 4% decline. After adjusting for the lost a “significant customer” (Wal-Mart) in 2013, Dean Foods’ fluid milk volumes decreased 0.6% for the year.
According to USDA estimates, U.S. dairy industry fluid volume declines increased sequentially, from a 3.5% decline in the second quarter of 2014 to a 3.7% decline in the third quarter. As compared to the second quarter, Dean Foods’ share of U.S. fluid milk sales volume remained flat, at 35.9%, during the third quarter. For the fourth quarter to date, ending November 2014, industry fluid milk volumes declined approximately 4.5% year-over-year, on an unadjusted basis. Through November, Dean’s share of total U.S. fluid sales increased to 35.6%, up from 35.4% in the fourth quarter of 2013.
Looking ahead
«Given the structural costs we have removed from our system and the multiple inherent benefits that come with cheaper raw milk, we expect our 2015 financial results to be substantially better than 2014,» Tanner said. «While we are currently experiencing cost declines across the entire U.S dairy commodity complex, we believe the dairy commodity environment continues to be volatile and unpredictable over the mid-term. Further, as we come out of this extended period of record high dairy commodity costs, it’s uncertain what product pricing strategies the retailers will pursue for private label white milk and how the related consumer purchasing dynamics will be impacted, both of which could have a material impact on our full year 2015 results.»
«Our customers include many of the largest and best food retailers and foodservice companies and distributors in the country,» Tanner said. “We believe our relative scale affords us sustainable cost, service, and quality advantages allowing us to more effectively service these customers versus our competitors. And with Americans’ increasing focus on health and wellness, I believe milk with its clean label, is well positioned as a fresh, delicious source of nutrition and protein for consumers of all ages. With the progress achieved in our cost reduction initiatives, we believe we are very well positioned and are excited about the future direction of the business.»
Source: Dairy Herd
