(Reuters) - Dean Foods Co (DF.N) forecast first-quarter profit well below analysts’ estimates due to weak demand for milk and higher investments in a recently announced joint venture to expand its organic milk business.
Shares of the largest U.S. dairy processor fell as much as 8.6 percent in morning trading on Thursday.
Dean Foods formed a joint venture with America’s largest cooperative of organic dairy farmers, CROPP, in November to process and supply organic milk as the company seeks newer avenues for growth.
Milk consumption has been falling in the United States, in part due to years of high prices amid a drought-induced supply deficit and shifting consumer preferences towards lower fat alternatives such as juices and vitamin water.
For the first quarter, the company forecast adjusted profit of 12-20 cents per share. Analysts on average expected earnings of 40 cents, according to Thomson Reuters I/B/E/S.
Dean Foods said its profit forecast assumes an almost 20 percent rise in dairy commodity prices and about 1 percent drop in the company’s sales volumes.
However, the company said it may not pass on the entire increase in commodity prices to customers.
Instead, Dean Foods plans to spend more modestly, setting a capital expenditure budget of $120 million-$130 million for 2017, down from $145 million in 2016.
The company said it was also laying the groundwork to implement zero-based budgeting across the company this year, under which managers have to justify expenses in each new budgeting period.
Volume sales fell 0.8 percent in the fourth quarter ended Dec. 31, while raw milk prices dropped 2 percent, the owner of DairyPure and Meadow Gold milk said.
The company’s net income rose to $32.83 million, or 36 cents per share, in the latest quarter from $18.48 million, or 20 cents per share, a year earlier.
Excluding items, the company earned 38 cents per share, missing the analysts’ average estimate of 41 cents.
Net sales were little changed at $2.02 billion, marking eight quarters of no revenue growth.
The company said it expected minimal contribution to its earnings this year from the joint venture.
Dean Food’s shares, which have fallen 1 percent in the last 12 months, were down 8.1 percent at $18.79 on the New York Stock Exchange.
(Corrects paragraph 2 to add dropped word “percent”)
Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Savio D'Souza and Anil D'Silva