QUOTE AND NEWS
newratings.com  Mar 26  Comment 
DF Deutsche Forfait AG postpones publication of 2013 Annual Report DGAP-News: DF Deutsche Forfait AG / Key word(s): Miscellaneous DF Deutsche Forfait AG postpones publication of 2013 Annual Report 26.03.2014 /...
SeekingAlpha  Mar 19  Comment 
By Juhi Kulkarni: The dairy industry in the U.S. is trying to solve a complicated dilemma: how to revive milk sales. The dairy alternative beverages or plant-based beverages market in the U.S. is growing rapidly. In addition, per capita fluid milk...
DailyFinance  Mar 18  Comment 
ATLANTA, GA -- (Marketwired) -- 03/18/14 -- Today, Hannibal Industries announces its TubeRack expansion into two of the nation's leading food and beverage distribution companies, Dean Foods and Saladino's, Inc. Having penetrated the global...
SeekingAlpha  Mar 9  Comment 
By Christopher Salerno: When I first wrote about White Wave Foods, Inc. (WWAV) in November, shares were trading at levels just under $22/share; WWAV now trades around $30.00 following momentum stemming from its impressive FY13 release. WWAV data...
StreetInsider.com  Mar 7  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Dividends/Dean+Foods+Co.+%28DF%29+Declares+%240.07+Quarterly+Dividend%3B+1.9%25+Yield/9257978.html for the full story.
SeekingAlpha  Feb 20  Comment 
By Gordon Tam: After the spin-off of the WhiteWave Foods Company (WWAV) and the sale of its Morningstar Foods division to Canadian based Saputo Inc. for $1.45 billion, Dean Foods Company (DF) has a much cleaner and healthier balance sheet with the...
BusinessWeek  Feb 13  Comment 
Dean Foods says the recent bad weather is decreasing milk consumption at schools
Benzinga  Feb 12  Comment 
In a report published Wednesday, Morgan Stanley analyst Matthew Grainger reiterated an Equal-Weight rating on Dean Foods Co. (NYSE: DF), but lowered the price target from $19.00 to $15.00. In the report, Morgan Stanley noted, “While we had...
TheStreet.com  Feb 12  Comment 
NEW YORK (TheStreet) -- Stifel Nicolaus has downgraded Dean Foods  to "hold" from "buy," citing the lack of near-term visibility. On Tuesday, the producer of organic soy milk announced fourth-quarter earnings of 18 cents a share which were in...
Wall Street Journal  Feb 12  Comment 
Dean Foods reported a fourth-quarter loss, hurt by high dairy prices and weaker sales caused, in part, by a reduction in food-stamp benefits.




 
TOP CONTRIBUTORS

Dean Foods (NYSE:DF) is the largest processor and distributor of milk and other dairy products in the U.S., with products sold under more than 50 familiar local and regional brands and a wide array of private labels.[1] As such, the company is highly dependent on milk prices, which have nearly doubled since 2002, when the Cooperatives Working Together (CWT) dairy farm group put initiatives in place to control dairy prices. Prior to 2002, the price of raw milk had been regulated by the government at around $9.90 per hundred pounds. In 2008, however, the USDA predicts raw milk will be between $18 and $19 per CWT. As a result, Dean Foods' gross and net margins may recede.

One trend that has helped boost the company's fortunes in the face of increased dairy prices has been its WhiteWave Foods group, which focuses on organic dairy and soy products. With the Natural & Organic Foods Consumption on the rise, this segment has been performing strongly for the company.

Company Overview

Dean Foods manufactures and distributes dairy food products to retailers, distributors, foodservice outlets, schools and governmental entities across the United States. Both the Dairy Group and WhiteWave Foods are heavily dependent on its main customer, Wal-Mart Stores (WMT), which accounted for 21% of the Dairy Group’s 2009 net sales.[2]

Both the Dairy Group and WhiteWave Foods use Dean’s extensive direct store delivery system, or DSD, which transports products from processing facility to customers’ stores via refrigerated trucks. Dean’s ownership of such an expansive DSD system has made it the only national dairy beverage company in the U.S.

Business Financials

In 2009, DF earned a total of $11.2 billion in total revenues. This was a decline from its 2008 total revenues of $12.5 billion. Despite the decrease in revenues, DF was able to improve upon its net income. Between 2008 and 2009, DF's net income increased from $184 million in 2008 to $228 million in 2009.

Business Segments

DF breaks its operations into two segments: i) Dairy Group, and ii) WhiteWave Foods.

Dairy Group (76% of 2009 total revenues)[2]

The Dairy Group manufactures, markets and distributes a wide variety of branded and private label dairy case products, including milk, creamers, ice cream, cultured dairy products, juices and teas to retailers, distributors, foodservice outlets, educational institutions and governmental entities across the United States. In 2009, this segment earned a total of $8.5 billion in total sales.[3]

WhiteWave Foods (24% of 2009 total revenues)[2]

The WhiteWave operation (“WhiteWave”) manufactures, develops, markets and sells a variety of nationally branded soy, dairy and dairy-related products, such as Silk soymilk and cultured soy products, Horizon Organic milk and other dairy products, and The Organic Cow organic dairy products, among others. In 2009, total sales for this segment were $2.7 billion.[3]

Key Trends and Forces

Heavy dependence on Dairy Prices (US)

The minimum price of raw milk is regulated in most parts of the country by the government at $9.90, but ever since Cooperatives Working Together (CWT), a dairy farmers group, put into place initiatives in 2002 to control milk supply by retiring herds, milk price have shot up.[4] Since raw milk is the primary raw material used by Dean’s Dairy Group, this increase in prices has hurt the company's profitability, especially since per capita demand for milk products in the U.S. has decreased and total demand for milk products has stayed constant. Increasing milk prices increases Dean’s cost of sale and cuts into their total operating income. The Dairy Group generally increases or decreases the prices of its fluid dairy products on a monthly basis in correlation to fluctuations in the costs of raw materials.

The rise of Natural & Organic Foods Consumption

Because of the increasing popularity of natural and organic foods, WhiteWave Foods has been Dean's source of growth the past few years. Especially in the organic milk market, demand rose dramatically due to a large increase in the supply of organic milk, which is a double-edged sword for Dean.

  • On one hand, limited organic milk availability in the past had resulted in WhiteWave's inability to meet consumer demand since cows take three years to be converted from regular to organic cows. Lowering organic milk prices will also cause prices to converge with higher regular milk prices, increasing demand for organic milk products.
  • However, the Department of Agricultures’s organic policy changed for one year in 2007, allowing cows fed on 80% organic feed and 20% conventional to be deemed organic (differing from its usual requirement of 100% organic feed), which increased the organic milk supply by as much as 70% (compared to its typical 20% growth).[5] This has led Dean to revise its earnings forecast downwards as it must lower prices due to the over-supply of organic milk in order to keep its leading market share.

Rising petroleum prices

Dean delivers most of its products through its extensive Direct Store Delivery system, and higher diesel fuel prices increases delivery costs. In addition, the Dairy Group's secondary raw material after milk is resin, a petroleum-based product used to produce plastic bottles, and an increases in petroleum prices will affect resin prices as well.

Competition

Although Dean Foods is the largest producer and distributor of dairy products in the United States, it face main competition from larger companies like Kraft Foods (KFT), Nestle (NSRGY), Dairy Farmer of America(DFA) and Groupe Danone (DA), many of which produce a variety of food and beverage products.

Kraft Foods (KFT) only derives 55% of its sales from dairy and 27% from beverages, and Nestle competes with Dean only in the coffee creamer and milkshake businesses in addition to having a small market share in the U.S.

Organic Dairy Market Share

Deans' products had a dominant shares of the milk and soy drink markets as of 2006; Silk brand had captured 70% of the soy milk market and Horizon Organic had 60% market share in the organic milk sector. As more beverage companies with bigger budgets move in to compete, Dean must formulate new marketing and product development strategies to counteract the competition.

References

  1. DF 10-K 2009 Item 1 Pg. 1
  2. 2.0 2.1 2.2 DF 10-K 2009 Item 1 Pg. 2
  3. 3.0 3.1 DF 10-K 2009 Item 1 Pg. 3
  4. "What is CWT?"
  5. Cox, Jeff. "Organic milk price war." CNN Money, Jun 25, 2007 <www.cnnmoney.com>.
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