Dean Foods Reports Higher Profits, But Misses Expectations

This is not a good time to be in the organics business. The largest U.S. dairy producer, Dean Foods, reported on Wednesday that overall sales rose 3 percent in its third quarter, but saw its profits fall short of expectations and issued a grim forecast thanks in large part to softening demand for its Horizon Organic products.

Dean prices Horizon products in the high end of what it considers an acceptable range, sending many consumers of organic milk to cheaper private-label brands. But increasing costs limit the company’s ability to hold the line on prices.

Reuters reported that Dean’s price increases for Horizon are double those of its rivals.

Dean reported that supplies of organic milk would fall over the next six months, which would put still more upward pressure on prices. Jack Callahan, the company’s finance chief, told analysts during a conference call that the Horizon unit “remains unprofitable.”

That doesn’t seem likely to change any time soon. Making things worse, other costs are also on the rise for Dean. Still, it managed to pull off a profit of 21 percent in its non-organic dairy business.

And anyway, profits rose overall – to $37.8 million, though it wasn’t enough to make Wall Street happy. Nor was the forecast of uncertain times ahead.

The higher sales figure is thanks largely to the company’s ability to pass on higher costs to consumers. That’s easy for conventional dairy products, especially milk. But it’s near-impossible for organic products, especially those that are already at the high end of the price range.