Dean Foods, the Dallas-based U.S. leader in dairy production and distribution, will cut 600-700 jobs across the country and is lowering its earnings guidance, the company announced Tuesday. "This is by far the most difficult operating environment in the history of the company," said CEO Gregg Engles. Dean, whose products include Land O'Lakes butter, Silk soy milk and Horizon organic milk, adjusted its EPS outlook to $0.15 for Q3 and approximately $1.25 for 2007. Two months ago, the company forecast Q3 EPS of $0.24-0.28 and said it "may be able to hit the low end" of earlier full-year guidance of $1.52-1.58. Dean had tried to pass "all-time high" dairy commodity costs on to consumers by raising prices on its branded milk products, but sales "softened as consumers react[ed]," said CFO Jack Callahan. "We also expect...organic milk oversupply to continue to negatively affect results for the balance of this year and into at least the first half of 2008." According to Dutch agricultural lender Rabobank Groep, milk prices are up because dairy farmers have not managed to keep up with a 3% rise in annual milk consumption. Q3 "has historically been the toughest quarter in terms of severe dairy price spikes," said Wachovia Securities analyst Jonathan Feeney. "We suspect things should get better from here."
Sources: Press release, Wall Street Journal, Reuters, Bloomberg
Commentary: Highest, Lowest Betas In the Russell 1,000 • Got Milk, Got Problems: Dean Foods Guides Down
Stocks/ETFs to watch: DF. Competitors: CAG, KFT. ETFs: FXG
Earnings call transcript: Dean Foods Q2 2007
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