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Dean Foods 2Q17 Earnings Call Notes

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Ralph P. Scozzafava – Dean Foods Co.

Volume softness continues to weigh on the broader food industry

“Despite some progress to-date, we’re experiencing a decline in our base volume greater than our previous expectations…Volume softness continues to weigh on the broader food industry. And the emphasis of specific retailers on private label within certain segments showed growth in Q2. For Dean Foods, this created a challenging environment on both volume and mix. In the second quarter, total Dean Foods’ volume of 615 million gallons across all products represents a nearly 3% year-over-year decline and was lower than our plan.””

Miscellaneous Notes 5.12.16

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Third Point Reinsurance’s (TPRE) Dan Loeb on Q1 2016 Results

We’re seeing some opportunities in distressed debt

“we’re seeing opportunities in distressed debt. So I want to stress. We’re not in a credit cycle where I think there’s going to be massive opportunities due to a slowing economy and large defaults. But we are seeing a lot of dislocations in various credits and we have been scooping up some very attractive names in – we’ve talked about this in the past, some fulcrum securities in energy companies. On the sovereign debt front, we’ve talked about Argentina. And there are a couple of distressed situations out there that we have been buying. I think structured credit is also – it was really off only for liquidity reasons, not for fundamental reasons. So we feel good about that portfolio. And I think the most interesting space right now is just in equities that are getting oversold or just underappreciated and under-owned that are in the industrial sector.”

Sotheby’s (BID) CEO Tad Smith on Q1 2016 Results

Do not expect art markets to return to 2014 or 2015 levels this year

“On our last earnings call, we said that we did not expect sale levels for the full year 2016 to reach the annual held levels of 2014 or 2015. And as of right now our view remains unchanged. However as I just outlined, recently, we observed the number of positive indicators most notably our Hong Kong sales series which was up 17% year-over-year. Of course our most significant data points for the second quarter kicked off tonight, with a number of important auctions to follow in the coming days so the next two weeks should provide all of us with a lot of good market intelligence. Until then we will remain cautiously optimistic.”

Dean Foods (DF) Gregg A. Tanner on Q1 2016 Results

See favorable supply/demand dynamics in dairy with supply outgrowing demand

“We expect global dairy fundamentals to continue to be overall supportive to our business as production growth continues to outpace demand. In the U.S., we continue to see domestic supply growth. Total U.S. milk production increased 1.8% year-over-year in March with production in the Midwest, Northeast and Northwest more than offsetting the continued decline in California. In addition, dairy herd continues to grow both sequentially and year-over-year. The current USDA forecast calls for 2016 milk production to increase 1.5% year-over-year. On the global supply front, the EU remains a leading contributor as their milk production has increased more 5% year-over-year. In contrast, we look at the continued decline of production in New Zealand. It has had minimal to no impact on the global markets. With U.S. butter and cheese prices remaining uncompetitive versus the international market, we continue to see a decline in overall U.S. dairy exports. Despite the temporary increase we saw in exports in January and February, the USDA published March data showing a decline of over 21% with the major drop in non-fed dry milk driving the decline. These supply and demand factors should continue to contribute to a relatively benign dairy commodity environment over the short term.“

Tyson Foods (TSN) Donald J. Smith on Q2 2016 Results

Low grain costs have helped us outperform

“ Obviously, our grain position is favorable this year with the low end of what we expect the five-year range of grain to be, and that helps over-deliver a bit.
And if you look going forward at what might cause any dip, it’s that level of fundamentals, primarily driven around the grain. But I tell you, we’ve done a very good job of utilizing the price discovery mechanisms afforded to us to be able to take a lot of the grain volatility out of our business. We’ve priced much more of our products off in some kind of a grain-based mechanism
“

Miscellaneous Earnings Call Notes 2.26.16

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Dean Foods FY 1Q16 Earnings Call

Gregg Tanner

Global milk production continues to increase

“We expect global dairy fundamentals to continue to be overall supportive to our business as production growth continues to outpace demand. Year-over-year, total milk production from the top seven exporters continues to increase, albeit at a much slower pace compared to the initial robust expansion experienced in 2014.”

Export volumes continue to decline

“I think the other thing that wasn’t in our prepared remarks is that we’re seeing export volumes continue to decline, so it’s leaving more milk in the U.S., which I think will help us longer term to kind of keep the prices more manageable as well.”

Greenlight Capital Re’s (GLRE) David Einhorn on Q4 2015

Entered 2016 with lowest short exposure ever

We entered 2016 with 16% net exposure, the lowest we’ve entered any year. The Greenlight Re investment portfolio returned 1.2% in January while the S&P 500 fell about 5%. Our shorts have been helpful and returned 7% in January. We started to see some reversion in the market in January and February as the markets have sold off we become a little more net long as our shorts have fallen in value and we found a few things to buy.”

Consumer could come to the rescue

“On the bright side, the U.S. consumer may come to the rescue as we are nearing full employment, wages are slowly rising and there is an effective tax cut in the form of low energy prices. It remains to be seen whether the U.S. consumer will provide support for corporate earnings and if not at least we hope they buy iPhones, GM cars, and Michael Kors bags particularly at Macy’s.”

Heidrick & Struggles International’s (HSII) CEO Tracy Wolstencroft on Q4 2015 Results

Everyone is focused on the volatility but no one is frozen by it

“We are all like you looking at the opening of 2016 and seeing the volatility, whether it would be how it emanates from Asia, from the energy markets, consequent knock-down effects in financial services, etcetera. We find in our client dialogue that while everyone is focused on it, no one is frozen by it. That may – does that that evolve? We will see. But I would say that every – certainly myself in meetings with clients as well as in meetings with our consultants, we are trying to get a barometer on what you are asking every single day. And it would be very difficult for us to give a broader trend line to what I just described.”

Rich Pehlke

Certainly seeing volatility in economic conditions affect client decisions

“We certainly are seeing the current volatility in the economic conditions factoring the client decisions about what they are doing and what they are thinking about the growth of their business and how they are going to deploy capital. The good news is as we have said many times is that talent is the hot agenda item for most leaderships and boards today. But at the same time, capital deployment certainly has an impact on driving our business. Where we have probably seen the most is as is consistent with what you have read in the news, where we probably see the biggest volatility right now is in the APAC region, simply because of the impact of China and what you see going on there in terms of people thinking about the region itself. And then certainly from a sector standpoint, we have seen more discussions and commentary in areas like financial services, which really are driven by large financial institutions from larger banks and obviously they moved and certainly have an influence on some of that. ”

Edison International (EIX) Theodore F. Craver, Jr. on Q4 2015 Results

SCE is a “wires focused business”

“We have positioned SCE as a wires-focused business, consistent with our views on industry transformation and in alignment with California’s public policy objectives to move the state to a low carbon economy.’

Bank of Montreal (BMO) William A. Downe on Q1 2016 Results

Surjit Rajpal – Chief Risk Officer, BMO Financial Group

Delinquency tick ups because the quarter ended on a Sunday?

“The question that you asked relates to the fact that this quarter again was on a weekend. And the difference between this quarter and the last quarter was that this quarter was on a Sunday, as opposed to ending on a Saturday, which really means that two days of payments that you would normally receive had to be deferred to the Monday following. And that explains the difference, because right after the weekend, the delinquency rate did go back to normal levels. So, I wouldn’t read too much into the early-stage delinquencies that you see in the chart there.”

90 day delinquencies have increased in Alberta

“So, when I look at the 90 days, you did notice that there was a quarterly increase of 14 basis points year-over-year, and that is telling in some ways. And we looked at Alberta in that respect as well, because your question if it’s more related to what’s going on in Alberta. In Alberta, year-over-year, there has been an increase of 34 basis points, which is actually much more telling. ”

Stifel Financial (SF) Ronald J. Kruszewski on Q4 2015 Results

IPOs were down 65% in 2015

“The number of priced U.S. IPOs in the fourth quarter of 2015 decreased to 32 from 68 during the same time period. That’s really down 53%. For the full year of 2015, the overall U.S. IPO market was down in terms of both number of transactions, which were down 41%, and dollars raised, down 65%. Certainly a difficult year in the IPO market and not starting off particularly strong this year.”

The reality versus the market’s perception are completely different

“The reality sometimes of what’s going on versus the market’s perception are completely different. This is one of those times.”

Target (TGT) Q4 2015 Results John J. Mulligan – Chief Operating Officer

Customers trust that you’re in stock

“What I think is much more important, when you talk about essential categories, ultimately this is about the guests trusting that you will have the merchandise they want when they come in our stores. If a new mom takes her baby out in 10-degree weather for diapers and formula, you better have diapers and formula in your store.”

HP (HPQ) Dion J. Weisler on Q1 2016 Results

Haven’t seen stimulation of demand from Windows 10

“I would say that Windows 10, whilst I still believe it’s a tremendous operating system platform and universal apps and continuing computing make devices like the Elite x3 a reality, we have not yet seen the anticipated Windows 10 stimulation of demand that we would have hoped for, and we’re carefully monitoring any sort of price developments that could further weaken demand. ”

Campbell Soup (CPB) Denise M. Morrison on Q2 2016 Results

Weather had some impact

“Finally, weather is not something we control and it’s certainly not the main reason for the decline in our soup business, but we believe the unusually warm winter had a negative impact on the entire category in the first half. ”

Miscellaneous Earnings Call Notes 11.12.15

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Chicago Bridge & Iron NV (CBI) Philip K. Asherman on Q3 2015 Results

Technology group turning around after slow start to this year

“In our Technology Group, after a slow start this year due to economic headwinds in China and a strong dollar elsewhere, the technology market is turning around.”

The Kraft Heinz (KHC) Bernardo Vieira Hees on Q3 2015 Results

ZBB is more than just a one time event

“The way we like to think ZBB, to be honest, is much less as a one-time event and much more as a systematic approach of doing business. It’s really fighting for the penny in the terms of capturing all the opportunities that allows us to be in a position that you can reinvest more behind working dollars, behind our people, behind our products, behind our brands and so on. So it’s not only a program, but it is really a business tool that we apply in different ways.”

USA Trucks’ (USAK) CEO Tom Glaser on Q3 2015 Results

Environment has been ok, holding up well

“I think it’s holding up well, to be honest with you. The volume hasn’t been exciting like it was last year but it’s consistent, it’s okay volume. As far as pricing, and probably not going to be as aggressive as some of our competitors in saying they are looking at 3% to 5%. We’re looking at probably 2% to 3%, and that’s pretty aggressive given the fact that our last two years”

AP Moeller-Maersk’s (AMKAF) CEO Nils Andersen on Q3 2015 Results

Container shipping rates have deteriorated in 2H

“Essentially, what is basically driving the change in our forecast is that the fundamentals in the container shipping have deteriorated in the second half of Q3; the rates have dropped quite significantly. So on average, the rates are or were 20% or 19.3% to be exact I believe, below last year’s and that became worse during the quarter. So September and October did not give any hopes for an immediate recovery and that’s why we adjusted downwards.’

Capacity has grown faster than demand

“So the challenge in the container business is not new. We’re struggling with all capacity; capacity has grown approximately 9% compared to Q3 last year and the market has only grown 1%. I think the low growth has taken everybody by surprise. At least it was below what we expected and definitely did not meet our hopes for the peak season.”

ArcelorMittal’s (MT) CEO Lakshmi Mittal on Q3 2015 Results

Expecting global steel consumption to decline by 1.5-2%

“This shortfall in volumes reflects the exceptionally challenging market we have faced so far in the second-half of this year. With the exception of Europe, all major markets have seen apparent demand contract in 2015. We are now forecasting global apparent steel consumption to decline by between 1.5% up to 2% this year. China, the ongoing weakness in real estate and machinery end-markets has caused a contraction of real demand by around 3% up to 4% this year.”

Chinese production is sticky but they have no structural cost advantage

“Chinese steel production is sticky, so exports have increased. Here the volumes, price, excluding China have declined to less than $300 per tonne. But this is not a profitable business model for Chinese mills as they have no structural cost advantages. This is highlighted by Sesa reports that mills lost an average of $35 per tonne in the third quarter.”

Customers are holding off on buying while prices are falling

“My view is that this is unsustainable. In order to arrest these losses, steel prices in China need to increase, either as a result of improved demand or as a result of production curtailment. The weak international price environment is eroding prices in our core domestic markets, also prompting customers to hold off on their order and their inventories down, so apparent demand has been running below real demand. And expected stabilization of prices will bring steel buyers back to the table. There is already some indication of this happening at the margin. ”

Hertz Global Holdings (HTZ) John P. Tague on Q3 2015 Results

Rise sharing impact has been less than “logical worriers” might expect

“As it relates to ride-sharing, we’ll talk a little bit about that next week. I think if you look at the highest concentration of ride-sharing markets, New York, San Francisco, and LA, in New York, you’d see an impact or at least what appears to be an impact. I think it would be hard in Los Angeles and San Francisco, given the overall industry trends, to draw a conclusion that there has been much of an impact, although obviously growth would have been higher for the industry without it. So, look, I think the impact continues to be less than the logical worriers might expect.”

The Priceline Group (PCLN) Darren Richard Huston on Q3 2015 Results

Travel is an inherently non-local business

“The case of China is a good reminder that travel is inherently a non-local business. It’s a global scale combined with win-win partnerships like we have with Ctrip, are critical for our mutual success.”

We’re doing a lot more business with Facebook. But Goog still the leader in intent based marketing

“we have been doing more and more business with Facebook. Most of it though is in the category or re-messaging or re-targeting. It’s not really in the big sweet spot which is intent-based marketing. That’s really what search gives you is intent-based marketing. Somebody types in, I want a hotel in New York, and then you are responding to that request. But the folks at Facebook very much understand this. They’re working to try to win that kind of businesses. It’s direct response business, it’s a big prize for any marketing channel, and we’re also trying to work with other large audience versus in Silicon Valley to try to get out that Holy Grail of intent-based marketing.”

Dean Foods (DF) Gregg A. Tanner on Q3 2015 Results

Milk supply is expanding faster than demand

“The EU is a leading contributor as their milk production has increased year-over-year by more than 2.5%, largely due to the elimination of the milk quotas at the end of March. This is particularly meaningful when one considers that the overall size of the European dairy production is approximately seven times larger than that of New Zealand and over one-and-a-half times larger than that of the U.S. Moreover, we see China’s milk supply expanding faster than their weaker consumption and a continuation of the Russian import ban. In the U.S., we continue to see ongoing domestic supply momentum due to a slightly larger herd and productivity growth more than offsetting the impact of the continued drought in California. These supply and demand factors should contribute to a relatively benign dairy environment over the short term.”

The health of the dairy category is as good as it’s been

“The health of the dairy category is probably as good as it’s been in my career at Dean Foods and while lower priced milk in terms of both cost and prices at retail is helping support that, I also believe that the abatement of certain secular headwinds, which we discussed in depth last quarter, is contributing. ”

D.R. Horton (DHI) David V. Auld on Q4 2015 Results

No question labor is tight

“Stephen, David. No question; labor is tight. The reports coming out of other builders – I mean, we’re not immune to it. I think we have mitigated it by having the best operating team in the industry. And the relationships that our people have with vendors, suppliers put us at the front of the line. So it flows back to the time with a company, time in a market.”

Controlling costs is really about people

“You guys are going to get tired of me saying this, but it really is the people. We got the – one of the toughest markets, toughest weather conditions, toughest labor markets, is our Dallas-Fort Worth area. And those two guys, because they have been in the market for 20-plus years, because they have a direct relationship with the vendors and suppliers, make a call and get people to show up. And you just can’t put a – you can’t quantify that and put it into a model.”

We still think there’s legs left in this cycle

“I would say we still think that there’s legs left in this cycle. I mean, we’re not even close to what is a historical demand. So we’re trying to be very judicious and value the capital we have.”

The WhiteWave Foods (WWAV) Gregg L. Engles on Q3 2015 Results

Almond milk sales growth has slowed but is still strong

“These are category growths that are very strong, they’re certainly not what we saw last year where we saw growth, where we still had the expansion of Almond, but it has been mid single-digits over the past several quarters, and we now have a category here that’s approaching $1.4 billion in overall retail sales.”

New distribution channel creates new manufacturing challenges

“I will add to that Ken, that this move into the immediately consumable beverage in the away-from-home market requires some slightly different manufacturing capabilities than we have. So we’re going to have build those – up those products, really want to be aseptic, so they can be distributed in a non-refrigerated way. You can make it work – refrigerated, but it’s somewhat more challenging.”

Energizer Holdings (ENR) Alan R. Hoskins on Q4 2015 Results

Seeing signs of stabilization in the battery category

“First, we continue to see signs of stabilization within the battery category. Value and volumes were essentially flat over the latest 12 weeks and 52 weeks. This is an improvement over the trends we’ve seen in prior years”

TV is still the best ROI for us on advertising dollars

“We were able to understand the return we get on each of those particular mediums. I can tell you that today, given both the effectiveness of our copy, the strength of our brand and the fact that we have global icons, TV is still the best ROI for us. But you will see us over time continue to migrate to shifts in mix of how we approach consumers and shoppers depending on what it is we’re launching, the marketing news that we’re bringing to the market and, again, continued ROI rates on each of those individual investments depending on what’s in the mix. ”

Dean Foods 2Q15 Earnings Call Notes

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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”

Dean Foods 3Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Most difficult operating environment ever

“This year has clearly been the most difficult operating environment we’ve ever experienced as a company. And so we remain rigorous in our focus on the things we control – price realization, cost productivity and volume at margins that deliver an appropriate return.’

Fluid milk volumes down

“Fluid milk category volumes remained soft and volume declines continued beyond what we would consider the normal trajectory of the category.’

Milk supply has grown this year

“In 2014, milk production continues to expand strongly in export regions. During the first half of 2014, milk production across the top 7 exporters increased 5.1% versus prior year. It’s expected that their milk production growth will moderate in the second half of 2014 and be approximately 4.1% for the full year. But this would represent the strongest supply growth in over a decade.”

Feed costs coming down, production going to outpace local demand

“High farm gate prices and low feed costs, especially corn, are creating strong producer margins and continuing to drive supply. Because production is expected to outpace the local market demand, even as the economy and prices ease, manufacturers will have to choose between selling at lower prices or building stocks.”

We expect costs will moderate as we exit 2014

“with solid global production against waning demand, domestic supply increasing and outpacing demand, the large and unfavorable differential in US versus international dairy prices, as well as other factors, we expect domestic raw milk cost to moderate as we exit 2014 and move into 2015.”

Dean Foods 2Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

most difficult operating environment in history of company

“This is by far the most difficult operating environment in the history of the company, reinforcing the importance of the initiatives that we have underway.”

Milk volumes soft

” the fluid milk category volumes remained soft and infact volume declines have accelerated beyond what we would consider the normal trajectory of the category. As Class I raw milk continue to rise through May, the category continued to weaken. ROI data suggest that year-over-year refrigerated fluid milk in the multi outlet or MULO in convenient store channels were down 4.1%, 4.8% and 4.7% respectively for April, May and June.”

Ready to eat cereal is declining too

“We are also concerned about the health of the ready-to-eat cereal category and its impact on fluid milk. Within MULO, total cereal volumes in Q2 were down 5% versus year ago levels which compares to last quarters year-over-year decline of 3%.”

High milk cost hit volumes

“Second, very high milk cost and resulting increases in retail prices created incremental volume softness in addition to increased pressure on our margins as pricing and retail was pressured by both price gap and price threshold considerations. In addition, higher raw milk cost raised the cost of Dean Foods of route returns, dumps, production losses and other forms of shrink.”

4% volume decline

“Total volumes in the second quarter were 674 million gallons, which represents a 4% decline from 703 million gallons in the second quarter of 2013.”

35.9% market share

“Our share as a fluid milk category for the quarter to date ending in May was 35.9%, which represents a 0.2% increase from the prior quarter”

Milk prices may improve late this year into 2015

” Although prices continued to remain in their record levels it is our and industry experts belief that we are seeing meaningful signs that raw milk pricing may improve as we move into late 2014 and early 2015.”

Bumping up against leverage covenants

“On an all-cash netted basis, our Q2 leverage ratio was 3.61 times net debt to EBITDA against our covenant maximum of four times. Today, we announced our intention to further amend our senior secured credit facility and receivables-backed facility to among other things, modify the consolidated net leverage ratio covenant to increase our maximum permitted consolidated net leverage ratio.”

higher cost firms will likely fail

“We would expect that this extremely challenged operating environment may cause some higher-cost firms to fail resulting in long-term opportunity for Dean to service additional customers at competitive prices.”

Consumers trading down to private label

“within Dean’s Foods, Chris, there was a — there is a negative mix shift taking place. So, our business transitioned about 1% of volume from brand to private label. So that’s a headwind for us as we experience that mix shift. But to Gregg’s point, brand versus brand, our brands continue to win in the marketplace versus competitive brand.”

All the fundamentals say that prices should come down, but they aren’t

“trying to prognosticate Class I at this point, all the data shows you that it should start to come down. All the fundamentals of the market say it should start to come down. But those fundamentals have been in place now for probably five to six months and we have not seen it come down.”

Margins on branded are 60c

“we have said in the past is that our branded margins, I think run at about $0.60 — $0.60 to $0.65 depending on the part of the country, higher than the private label margins.”

Dean Foods 4Q13 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

An unprecedented dairy environment

“Before turning to our results I wanted also take a moment to update you on the increasingly challenging and unprecedented dairy commodity landscape. Looking back on 2013 particularly over the second half it was a very challenging year as domestic raw milk prices continued to be meaningfully impacted by global developments in ways that we had not seen previously.”

Powder prices highest since 2007

“Through November the U.S. has exported over 1.1 billion pails of powder which represents a 24% increase compared to last year’s record year. At current levels powder prices are at their highest levels since the fall of 2007.”

Dramatic price inflation in Cheese

“Recently the domestic cheese market has experienced dramatic price inflation at the CME as the increased exports, decreased imports and higher milk utilization in class four butter and powder products have led to tightness in the cheese market. At current levels CME’s spot cheese prices have been fluctuating near or above all time high.”

Chinese causing the price increases

“All major U.S. dairy product export volumes have experienced meaningful year-over-year increases in 2013 with China leading the way in terms of import demand, increasing their total dairy imports by 42% in 2013, with most of this increase in the form of whole milk powder.”

“A significant constriction in Chinese milk production coupled with rising demand for dairy based protein throughout Asia ultimately caused the dramatic increase in Asian demand for imported dairy commodity dairy products. Since the melamine crisis China has struggled to achieve desired growth in its own milk supply, weather disease and regulatory changes in China have conspired to create a full blown supply challenge in 2013.”

Chinese production down 5-10%, not going to recover in 2014

“industry analysts have estimated Chinese milk production to be down anywhere from 5% to 15% compared to year ago levels with most of the trade estimates in the 5% to 10% range. Chinese milk production is not expected to fully recover in 2014 as these are issues that cannot be quickly reversed.”

US and EU need to pick up the slack

“in order for domestic raw milk prices to experience a noticeable decline in the second half of 2014 there will need to be a significant supply response from both the U.S. and the European Union.”

Elevated milk prices throughout 2014

“Overall we expect raw milk prices to remain elevated across all categories throughout 2014 especially in the first half.”

Dean Foods 1Q13 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“The dairy commodity environment looks to be a neutral factor in our forecast. Diesel, resin and sugar are expected to be modest tailwinds. We are confident the momentum behind our cost-reduction activities will deliver solid bottom line results.”

“I mean, our continued focus is to continue to drive down our debt, and we need to get it below the 2.5 target that we’ve set for ourselves and we need to keep it below that for an extended period.”

[analyst comment] “So we’ve had several examples of other people in the industry rationalizing capacity. I’m — and you’ve obviously closed plants as well. Could you give us any rough estimates of what proportion of the total industry capacity has come out over the last year to 18 months?”

“As far as other industry capacity, I can’t really speak to what has come in or out, as I don’t — I can speak to what we’ve done. And as I talked to earlier, we’re going to take 10% to 15% of our facilities out. That should translate in very similar types of capacity. It may be a little bit less, but it should be relatively close to the percentage of facilities that we take.”

“in the U.S. market. I think we’re going to be relatively stable through the back half of the year, slightly increasing…Per cow output within the U.S. has remained very strong, so some of the fundamentals look pretty good.”