Dean Foods Warns

It cites rising milk prices.
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Dean Foods

(DF) - Get Report

cut earnings guidance, citing rising milk prices and a glut of organic milk.

The Dallas-based dairy company said it expects to make 30 cents to 31 cents a share for the second quarter and $1.52 to $1.58 a share for the year. Analysts surveyed by Thomson Financial were looking for a 37-cent profit for the quarter and $1.70 for the year.

"It has become increasingly likely that conventional raw milk prices will reach all- time highs by the third quarter," said CEO Gregg Engles. "We expect this steep rise in dairy costs to put pressure on Dairy Group profit growth, especially in the second and third quarter.

"Second, as we've mentioned before, our Horizon Organic brand is facing a significant near-term industry-wide oversupply of raw organic milk. This oversupply is largely due to a change in the regulations governing the organic transition and certification process that caused many farmers to enter the one-year transition process prior to the new regulation taking effect in June 2006. The resulting oversupply of milk is creating a considerable disruption in the organic milk market as competitors compete aggressively to expand sales and distribution.

"Our WhiteWave team is responding with an aggressive program to protect Horizon Organic's leadership position through this period. This program includes lowering prices in response to competitor actions, pursuing expanded distribution, increasing our advertising support and continuing to drive innovation to maximize the long-term potential of the brand. We expect these investments to negatively impact near-term profitability."