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Dairy Costs Crush Dean Foods

The company slashes guidance and says it will cut jobs.

Dean Foods

(DF) - Get Report

, hurt by rising dairy commodity costs, slashed its third-quarter profit estimates and said it will cut 600 to 700 jobs.

Shares sank $2.06, or 7.8%, to $24.23 in premarket trading Tuesday.

The Dallas-based food and beverage concern expects to post earnings of 15 cents a share for the third quarter, below its earlier forecast of 24 cents to 28 cents.

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On average, analysts polled by Thomson Financial expected earnings of 26 cents a share.

The company, which makes products such as Silk soy milk and International Delight coffee creamer, said that increasing commodity costs have materially reduced profits. They also have hurt sales as customers react to higher prices.

"The third quarter has been particularly challenging as dairy commodity costs have risen sharply, hitting all time highs," said Chairman and CEO Gregg Engles." This is by far the most difficult operating environment in the history of the company, reinforcing the importance of the long-term strategic initiatives we have underway."

Dean Foods also said that it had expected strong growth in milk supply to take commodity prices lower, but it now expects that strong export demand for non-fat dry milk powder will keep prices high throughout 2007. The company sees full-year earnings of $1.25 a share, compared with analysts' forecast of $1.46.

The company said its job cuts of 600 to 700 positions will begin immediately, and will affect employees in its dairy division. According to Dean Foods' Web site, the company has roughly 27,000 employees.