Dean Foods Q1 profit up, liquidity weighs on stock

By Dhanya Skariachan

BANGALORE (Reuters) - Lower milk costs and tighter expense control helped top U.S. dairy processor Dean Foods Co (DF.N) beat estimates handsomely in the first quarter, but its shares fell on lingering liquidity concerns.

The giant dairy company, which backed its 2009 profit forecast of at least $1.55 a share, also gave a disappointing second-quarter outlook.

The Dallas-based maker of Horizon Organic milk and International Delight coffee creamers made an offering of 22.5 million common shares on Friday to repay debt.

"The fact that they are issuing shares to help pay down a maturity that's (due in) two weeks sends a signal that their liquidity is pretty tight," Morningstar analyst Ann Gilpin told Reuters.

Dean said it intends to use the net proceeds of the offering to repay the $122.8 million aggregate principal amount of its unit's senior notes due May 15 and repay debt under its receivables-backed facility.

Despite Dean's chances of benefiting from lower milk prices in the second quarter, the weak economy and consumer tendencies of focusing on price while shopping could be headwinds for the company as it tries to promote its higher-priced organic milk products, said Gilpin.

"They are not really out of the woods yet," she said.

For the second quarter, the company expects earnings to be at least 38 cents a share, before items, assuming the issuance of about $465 million of common shares.