Dean Foods to face ‘structural risk’ competition from Walmart

by Talk Business & Politics staff ([email protected]) 206 views 

Dean Foods, the nation’s largest milk company, said Walmart’s entry into the milk business will mean the loss of approximately 100 million gallons of private label milk it has been supplying to Walmart.

Dallas-based Dean Foods noted in a filing with the Securities and Exchange Commission that Walmart’s new milk plant should not have a “significant impact” on the company.

“It’s disappointing to learn of any potential loss of business, but we remain confident in our future and the strategic plan we recently put in place,” said CEO Gregg Tanner. “We understand the fresh dairy space better than anyone and have proven that we can manage change and will navigate this development with the same determination as we have in the past. With more than a year advance notice and the low-margin nature of the potential lost private label milk volume, we expect to govern our business such that this will result in very little impact to our financials.”

In particular, he said the Walmart announcement shouldn’t impact Dean’s sales of its national brands, DairyPure and TruMoo or sales of its other non-fluid milk products.  That said, 52% of Dean’s $8.1 billion in sales last year still came from private-label brands, and Walmart’s new milk factory expected to open in 2017 will impact that business no doubt. Last year Walmart accounted for  16% of Dean’s sales.

Wall Street also sees the competition with Walmart as posing a “structural risk” to Dean’s operating margins, according to BMO Capital Markets Analyst Amit Sharma. While lost sales attributable to the new plant are difficult to forecast, each 1% decline in Dean’s milk volume could hurt annual earnings per share by 12 to 14 cents, according to Sharma.

Tanner said Dean management has been talking for several quarters about increasing the focus on building brands and buying new brands as they navigate this change in direction.