Dean Foods To Continue Closing Plants in 2018
Dean Foods recently announced plans to close two processing plants as the company continues to shutter businesses in cost-cutting measures. The latest plants to close are Meadow Brook Dairy in Erie, Penn. and Garelick Farms in Lynn, Mass.
Earlier this year Dean notified more than 100 producers that their milk contracts were to be terminated by May 31. At that time, Reace Smith, director of corporate communications with Dean Foods, cited “a surplus of raw milk at a time when the public already is consuming less fluid milk” as the reason for supply reduction.
When the contract terminations were announced Dean acknowledged that more consolidation was on the way.
“We expect to consolidate our supply chain by a meaningful amount over the next 18 to 24 months while also making sure that we deliver the same great quality, value and service that our customers have come to expect from us,” Ralph P. Scozzafava, chief executive officer at Dean Foods told the Food Business News. “For this important reason, we’ll implement our supply chain changes in phases with targeted completion in 2019.”
In a recent earnings report, Scozzafava told analysts “we consider 2018 an important year of transition and transformation as we take aggressive yet appropriate action to drive our strategy and reset our cost structure at the same time.”
Dean appears to be holding to its word, and rumors have surfaced regarding more plant closings coming soon. As many as seven plants are rumored to be closing, although there is no official word from Dean.
Simple supply and demand economics appear to be the reason for consolidation. U.S. milk production continues to climb as the demand for fluid milk wanes. That’s not good news for Dean, the nation’s number two processor of fluid milk behind Nestle. According to the company’s financial report the company registered a year-over-year 8% drop in gross profit in the fourth quarter of 2017, and a 4% drop in the first quarter of 2018. Share prices have dropped more than 50% in the last 12 months.
The fall-off in earnings and the sale of capital assets, like processing facilities, cause some analysts to predict that Dean Foods may be ripe for sale.
“We do believe such scarce dairy processing assets in the U.S. could be an interesting strategic target for a number of potential acquirers,” said analysts from Deutsche Bank. The Bank notes that takeover bids have happened in the past, though, without significant results.
In the meantime, Dean continues to look for other options for growth, including getting in to the milk alternative business. In a story from Bloomberg, Scozzafava said the company is debating whether to become a majority shareholder in Good Karma Foods, which makes milk and yogurt from flaxseed. The company has been a minority shareholder since May 2017.