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Dean Foods Stock Drops as Cheap Milk Takes a Toll
USAgNet - 08/09/2019

Dean Foods Inc. stock fell as much as 34% this past week after the company reported a quarterly loss that it blames on retailers who are discounting milk to get customers through the door.

Shares were on track to close with the biggest percentage loss since May 2010.

Chief Financial Officer Jody Macedonio said on an earnings call that the overall dairy category is down 2% annually over recent years, and the trend picked up steam in the second quarter.

"The dairy category continues to be pressured by very low retail price points on private-label milk while at the same time, accelerated dairy commodity inflation is putting additional pressure on margins," she said, according to a FactSet transcript.

Retailers are placing price promotions on milk to boost business, but Dean Foods says they're hurting themselves with the practice.

"As retailers continue to invest in private-label milk to drive foot traffic, private-label margin over milk is contracted to $1.26 in June matching a historic low," she said. "As retailers continue to fund pricing promotions to drive traffic into their stores, they're draining their own profitability. As a result, we believe these margins are unsustainable and expect it to alleviate over time."

Even more optimistically, Macedonio said that the "unsustainable" margins make Dean Foods brands "even more important to the profit pool."

Dean Foods brands include DairyPure, a white milk brand, TruMoo, a flavored milk brand, Land O'Lakes and Tuscan.

The company also noted the beverage options that customers have nowadays as competing with its dairy offerings. In a statement from the company's media relations team, Dean Foods cast a wide net, saying those alternatives include water. More specific to the milk category, consumption of plant-based milks like oat milk and almond milk has grown 6%, data shows.

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