Dean Foods Has Already Taken Steps to Diversify

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Source: bloomberg

By Shruti Singh

Dean Foods Co., the largest U.S. dairy processor, is looking beyond its trademark milk and other signature products as it seeks to diversify and grow, according to the chief executive officer.

“We have to diversify,” Ralph Scozzafava, who became CEO of the Dallas-based company last month, said in a telephone interview on Thursday. “We have got a pretty wide lens.”

Scozzafava, previously a vice president at WM Wrigley Jr. Co. who came to Dean in 2014, said the company is pushing growth in its core dairy business through products such as ice cream, flavored milk and sour cream, but also sees potential in juices, teas and possibly plant-based beverages. Dean is eyeing food and beverages that it can process in its plants or store and haul in its refrigerated warehouses or trucks. The company may seek new products through internal development and by buying companies, Scozzafava said.

U.S. per-capita milk consumption has declined in recent years as buyers sought alternatives. To battle the slump, Dean has introduced several dairy products to shore up volume. In 2015, it introduced the DairyPure milk brand, which is tested for antibiotics and contains no artificial growth hormones, to counter competition from organic milk and soy- and almond-based substitutes. A few years earlier it introduced TruMoo flavored milk.

Earnings Miss

While both of these products have helped, volumes and profits still have disappointed. Dean shares slumped the most since March on Thursday after it projected 2017 profit that missed analysts’ estimates and forecast total volumes will decline by about 1 percent in the first quarter. Fourth-quarter profit also disappointed. The company is expected to lose some business in the Midwest when Wal-Mart Stores Inc. begins producing milk at a plant planned in Indiana.

Scozzafava said his goal is growth that drives earnings and cash flow, not just volume and market share. The focus is on running like a packaged food or beverage company with a variety of brands, he said.

“If you don’t make money in new volume and share, it’s fool’s gold,” he said.

As the company expands beyond conventional milk, its range of products is starting to look more like WhiteWave Foods Co., which Dean spun off in 2013. WhiteWave makes Silk plant-based beverages, Horizon organic milk and International Delight iced coffee. Danone in July announced it plans to buy WhiteWave.

Ice Cream

The company has already taken steps to diversify. Last year, it announced it would introduce a ready-to-drink iced coffee in partnership with Caribou Coffee Co. In June, it purchased Friendly’s Ice Cream LLC’s retail ice cream and manufacturing business for $155 million and announced a partnership with independent farmer cooperative CROPP to process and distribute certain Organic Valley milk products in November.

“We anticipate Dean Foods will continue to rebuild a value-added product portfolio” that could include organic, extended shelf-life and flavored products, Farha Aslam, a New York-based analyst for Stephens Inc., said in a telephone interview Thursday. The company will probably use its refrigerated distribution network, one of its competitive advantages, she said.

Dean is seeing more in the deal pipeline since the Friendly’s deal, Scozzafava said on a call with analysts Thursday.

“We are open for business,” he said. “Folks who have a business to sell know that they can call us and it’s not a wasted phone call. And I think that’s important.”

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