DALLAS, Sep 7, 2004 -- Dean Foods Company (NYSE: DF) announced today that unprecedented volatility in raw milk prices, a difficult retail grocery environment, and record-high fuel, resin and other commodity costs have caused it to reduce its earnings expectations for 2004. The company said that these and other factors are contributing to weaker than expected performance across all of its businesses.
For the full year 2004, the company now expects to achieve adjusted earnings per share (EPS) in the range of $2.00 to $2.05. The company expects to achieve adjusted EPS of $0.44 to $0.46 and $0.63 to $0.66 in the third and fourth quarters of 2004, respectively.
Gregg Engles, Chairman and Chief Executive Officer, said, "We said on our August 4th conference call that our guidance for the balance of 2004 assumed a certain limited benefit to our Dairy Group as a result of decreasing raw milk prices. As July results came in, and we moved through August, it has become apparent that the competitive pressures we referenced on the call are more intense than we expected. While our volumes are strong in our Dairy Group and Branded Products Group segments, we have not realized the margin benefit we expected from the July and August declines in dairy commodity costs. Furthermore, we've continued to be impacted by rising fuel and resin prices, volatility in the butter market, and aggressive competition among our retail customers."
Engles added, "As we also indicated on our second quarter conference call, our Specialty Foods Group segment has experienced commodity cost and competitive pricing pressures. These trends have not abated and, in fact, we have seen sharply weaker demand from our co-pack customers in the nutritional drinks business, particularly in low carb beverages. Our retail pickle business also has been significantly weaker than expected due to soft demand in a cool, wet summer. We are systematically analyzing all aspects of our Specialty Foods business with a view to reducing costs and returning this operation to its historical levels of profitability."
Engles continued, "Our Branded Products Group segment -- which includes Silk and Horizon Organic, the largest and most dynamic natural and organic brands in the U.S. -- continues to be a bright spot and we expect it to remain so for the foreseeable future. We have, however, somewhat reduced our expectations for our branded business for the balance of the year. We now expect White Wave sales will grow 36% year over year as opposed to 40%, and have lowered our profit expectations accordingly. With the recently announced consolidation of our branded businesses, we are creating a unified consumer products company with approximately $1.1 billion in sales and operating profit in the range of 8% to 10% in 2004, and we continue to be very encouraged about the opportunities for this business."
Engles continued, "Turning to our Spanish dairy operations, unlike in the U.S., raw milk costs have continued to rise in the third quarter in Spain, and due to competitive pressure, we have not been able to pass through the increases as rapidly as we had hoped. Volume growth continues to be very strong, but lower branded sales resulting from an industry-wide trend of consumers shifting to lower-margin private label products and competitive pressures will adversely affect our margins for the remainder of the year."
Engles concluded, "While we're clearly disappointed with today's announcement, we remain confident about our future prospects. While this year will reset our base, we continue to believe that, absent the extraordinary circumstances we have faced this year, our business is well positioned to grow EPS an average of 8% to 10% per year over time. In a difficult market, we've continued to gain market share in our dairy business and remain committed to meeting the needs of our customers -- a strategy that we believe will drive profitability and shareholder value in the longer-term. We expect to provide earnings guidance for 2005 as usual on our third quarter conference call in November."