Dean Foods (DF), which describes itself as the country’s largest milk processor, noted an unusual effect on the dairy business of the recent spate of bad winter weather. “Given the extremely cold weather across a large part of the U.S., we have experienced temporary school milk volume losses and increased distribution costs,” said Chief Executive Gregg Tanner during an earnings call this week. Fewer school days, fewer kids chugging milk in the cafeteria.
Schools buy a lot of milk. In fiscal 2012, American schools served 403 million gallons of milk, worth about $1.35 billion, as part of the USDA School Meal Programs, which includes breakfast, lunch, a special milk program, and a summer food-service program, according to the National Dairy Council. A spokesperson for the dairy group held out hope that the impact of the recent school closures on milk sales might not amount to much if schools ultimately make up the snow days.
For Dean Foods, sales to schools and other government institutions represent about 7 percent of total milk sales. The school year has a seasonal effect on its business, the company explained in a filing with the Security and Exchange Commission last year, with a predictable decline in fluid milk sales when school is out. Luckily, as the company noted, “this drop in volumes is partially offset by the increase in ice cream and ice cream mix consumption during the summer months.”
This is just the latest problem to hit Dean Foods, which lost its contract with Wal-Mart Stores (WMT) to a lower-cost competitor last year, putting a significant dent in sales. The company also faces declining per-capita milk consumption in the U.S. In the fourth quarter, Dean Foods’ volume sales of fluid milk fell 0.6 percent after adjusting for the loss of Wal-Mart’s business; unadjusted, the decline was 9 percent. In the previous quarter, adjusted volume was down 1.7 percent.
Dean is closing plants to cut costs and betting that its TruMoo brand of flavored milk will help expand sales once again. “As we look to 2014, we will continue to invest behind this brand at leadership levels,” said Tanner. “We expect to support the business with seasonal promotions and flavors such as chocolate marshmallow.”
There’s no use crying in this business, after all.