Dean Foods Co. (DF) Wednesday posted an 8 percent drop in second-quarter profit as high raw milk costs hammered the largest U.S. dairy processor, sending its shares down about 3 percent.
But the company also said raw milk prices are returning to normal levels and stood by its outlook for higher earnings in the third and fourth quarters.
Dallas-based Dean posted profit of $77.1 million, or 47 cents a share, in the quarter, down from $83.8 million, or 54 cents a share, a year ago.
Analysts on average forecast earnings of 48 cents a share, according to Reuters Estimates. In May, the company said it expected second-quarter earnings of 47 cents to 50 cents a share.
Sales rose 26 percent to $2.81 billion, as the company passed on the higher milk prices to consumers.
On May 4, Dean forecast a drop in second-quarter earnings on higher raw milk and other commodity costs. That forecast had been anticipated by investors and the stock has rallied about 7 percent since then.
Raw milk prices hit their highest levels in years during the spring as production fell due to a halt in imports of Canadian dairy cattle after the discovery of mad cow disease in Canada last year. Also, demand for beef due to the popularity of high-protein diets increased the slaughter of dairy cows.
Dean forecast full-year profit, before one-time restructuring costs, of $2.21 to $2.26 a share, in line with its long-term growth target of 8 percent to 10 percent. For the third quarter, it forecast of 54 cents to 57 cents and for the fourth quarter forecast 72 cents to 76 cents.
Analysts on average forecast 56 cents a share in the third quarter, 74 cents a share in the fourth quarter and $2.24 a share for the year.
Dean shares were down $1.06 or about 3 percent at $35.24 on the New York Stock Exchange (search) on Wednesday.