Dean Foods 2Q15 Earnings Call Notes

Cost of raw milk down 33% y/y

“As expected, raw milk cost increased gradually within the second quarter but the $15.82 per 100 weight quarterly average represents a decline of $0.97 or 6% sequentially and a decline of $7.84 or 33% a year-over-year basis. ”

New national label

“we expect DairyPure to provide a number of clear benefits for the consumers to category, retail customers and certainly for our company. For consumers DairyPure is on trend with a desire for clean label, local stores, fresh protein and nutrient packed products. We were seeing strong consumer response as our DairyPure message has already reached more than 1 million facebook users and our average post engagement rates since launch is nearly six times the industry average.”

Organic milk volume growth has decelerated

“Next, organic milk volume growth at retail has decelerated the past five quarters. While the category is still experiencing positive growth, supply issues and retail prices appear to be capping at share of the category.”

You don’t have to drink organic to have food that’s antibiotic and hormone free

“With DairyPure, we are telling consumers that they don’t have to drink organic milk to have milk that is tested for antibiotics and that is free of growth hormones. ”

Almond milk took share from soy, almond milk decelerating

“From a plant based beverage standpoint, much of almond milks’ growth appears to have fueled mainly at soy’s expense. And like organic milk, the almond milk category has had similar deceleration in growth rates since early 2014. It also appears to us that almond milk maybe on its way to ending this growth cycle much sooner than soy.”

Consumers are looking for protein and milk is a cost effective source

“consumers are asking for healthy high protein products. We believe that through our efforts to improve consumer education supported by MilkPEP, we may be able to make more consumers of plant based products aware that conventional milk is a much more cost effective and caloric source of protein. ”

Per capita milk consumption has fallen, but not total

“There is a general misconception that the fresh white milk category in the U.S. has been declining annually for decades. While that’s applicable through our per capita consumption with population growth fresh white milks volumes actually increased every year from 2005 to 2009 at rates ranging from 0.2% to 1.1%. Generally speaking, post great recession headwinds to the category have included the declining birth rates, declining cereal consumptions, the emergence of alternative dairy beverages both organic and plant based. ”

Not sure if supervalue/safeway merger is opportunity or threat at this point

“I don’t whether it’s an opportunity or if it’s a threat at this point but I thinks it’s one where — as we continue to look at our capabilities of what we can do, I think there is plenty of opportunity for us to continue to be profitable and then do what we need to do without any of that in the mix.”

Commodity market is pretty stable for now, but volatility could increase as domestic and international dairy prices converge

“we believe the commodity market is pretty stable for the third quarter, I would tell you that I think it’s still extremely volatile for any further out than that because there is a considerable gap between the international prices today and the U.S. prices. There is a historical gap between Class III and Class IV milk prices right now. All of those at some point will have to converge. And I just think that you’re going to see the volatility in this market play out, I don’t know if it’s fourth quarter, first quarter, or second quarter, but those have to come together”

It effects imports and exports

“Just as an example, U.S. butter prices today are at about $1.99 a pound and international butter prices are at about $4 pound basis the GDP. So any time you get those price gaps, you’re going to see exports start to go down, or are going down considerably and imports are starting to come up”