Franklin Park, IL - Dean Foods Co. said its fiscal second-quarter operating earnings rose as the company generated higher profits from several recent acquisitions.
Even so, the results fell shy of Wall Street's targets as volatile commodity pricing -- most notably for butterfat and raw milk -- took a bite out of profits.
The maker of milk, ice cream, salad dressings and other products said it earned $23.4 million, or 58 cents a diluted share, from continuing operations, in its second quarter ended Nov. 29, up from last year's $20.5 million, or 50 cents, in the year-earlier period. Sales jumped to $934.4 million from $624.9 million.
The profits were below Wall Street's expectations for 60 cents a share, according to First Call, a research firm that tracks such estimates. The stock was down $2.1875 at $40.25 in afternoon trading on the New York Stock Exchange.
Net income for the quarter was $106.0 million, or $2.62 a diluted share, including an $83.8 million gain on the sale of its vegetable unit in September, and a $1.2 million loss from discontinued operations.
“Each of our business segments reported increased operating earnings over the second quarter of last year,” Howard Dean, chairman and chief executive, said in a statement.
In the dairy segment, sales were up 62 percent over the previous year, helped by several acquisitions. Dean Foods has been an aggressive buyer of dairies in a bid to expand its presence across the country. The company posted double-digit earnings gains in its specialty and pickle categories.
But volatility in the market for U.S. butterfat, a key ingredient in ice cream and other high-fat products, hurt Dean's results for the second quarter. U.S. butterfat prices rose to record highs in September amid dwindling supplies and strong demand for ice cream and other dairy products, but then turned sharply lower in recent weeks.
Conditions may get worse for Dean Foods before they get better, said David Nelson, food industry analyst with Credit Suisse First Boston.
“Looking forward, dairy market volatility is expected to be even more negative in the third fiscal quarter before normalizing in the fourth quarter,” Nelson said in a research note on Tuesday. “Longer term, such volatility should sort itself out,” he added.
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