Dean Foods Fights Off Organic Milk Rivals as Volume Slips

August 14, 2015 03:34 PM
Dean Foods Fights Off Organic Milk Rivals as Volume Slips

While Dean Foods Co. has garnered attention in recent days as its ex-chairman is said to be part of an insider-trading probe, the largest U.S. milk processor faces another challenge: how to win back market share.

In May, the company began selling DairyPure, which it says is the first nationally branded fresh white milk tested for antibiotics and containing no artificial growth hormones. Although it’s too early to project the long-term impact of DairyPure, the company is “pleased” with its performance so far, Chief Executive Gregg A. Tanner said Monday.

“Our national brand fills a void in the dairy industry,” Tanner told analysts on a conference call.

Dallas-based Dean is trying to counter the growth of organic and soy- or almond-based milk substitutes. Another problem is that Americans have been steadily drinking less milk in recent years amid competition from plant-based substitutes, while ready-to-eat cereal sales have been weak, said Ken Shea, a Bloomberg Intelligence analyst. Dean’s share of U.S. fluid milk volumes fell to 35 percent in the second quarter from 36 percent a year ago, the company said Aug. 10.

Some trends may work in the company’s favor. Organic-milk volume growth at retail has decelerated in the past five quarters because of supply issues and higher retail prices, Tanner said. Also, the decline in cereal consumption has begun to moderate, according to the CEO.

“If the company can market well behind DairyPure, perhaps the opportunity is greater than we anticipate,” Ken Goldman, a New York-based analyst for JPMorgan Chase & Co., said in a note Tuesday. “Most grocers appreciate national brands because they are readily recognized, sought by consumers, and carry higher prices than private label.”

Volume Decline

Goldman is one of nine analysts with a hold rating on the stock, according to data compiled by Bloomberg, which also shows three buy recommendations. The stock rose 0.5 percent to $16.77 at 9:34 a.m. in New York. It has fallen 13 percent this year while the Standard & Poor’s 500 Index is up 1.2 percent.

DairyPure will add half and half, heavy whipping cream and buttermilk to its roster of products in the months ahead, Jamaison Schuler, a Dean spokesman, said in an interview Thursday.

Gains from DairyPure could help offset some of the volume decline in the third quarter that Dean Foods forecast Monday when it reported second-quarter earnings.

The company’s shares tumbled as much as 18 percent that day after executives declined to elaborate why Tom C. Davis resigned as chairman three days earlier.


Davis is under investigation by federal authorities, a person familiar with the matter said Thursday. He’s co-operating with the U.S. Securities and Exchange’s Commission, according to his lawyer, Tom Melsheimer. The Federal Bureau of Investigation is also inquiring, the person also said.

The two agencies and prosecutors in New York were reviewing Dean Foods trades made in 2012 by Las Vegas gambler William “Billy” Walters and golfer Phil Mickelson, a person familiar with the situation said in June of last year.

Davis “has no knowledge of any material, nonpublic information about Dean Foods Co. being communicated to Mr. Walters by anyone, at any time,” Melsheimer said Thursday. Dean said it has cooperated with the government’s requests for information and will continue to do so.

Dean said Wednesday that Jim L. Turner was elected as its new chairman.

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