Dean Foods Partners With Hero On New Chilled Fruits

Dean Foods/Whitewave -fruit2dayOn Tuesday, dairy giant Dean Foods not only reported a sharp rise in profits for its third quarter, but announced a 50/50 joint venture with Swiss-based Hero Group, the international producer of fruit and infant nutrition brands Hero and Beech-Nut.

The new venture, called Hero/WhiteWave and based in Broomfield, Colo., will move Dean's WhiteWave business beyond its original soy (Silk) and organic milk products (Horizon) portfolio for the first time. Dean acquired WhiteWave from natural foods entrepreneur Steve Demos in 2002.

Hero--the world's largest jam producer--has had success with chilled-fruit products in Europe, and believes that North American consumers are a prime next market for these "ground-breaking, chilled-fruit category innovations," said Hero Group CEO Stefan F. Heidenreich. The two companies will share their focus on innovating with healthful products, as well as technology, manufacturing and distribution capabilities, they said.



Hero's chilled-fruit products are scheduled to launch nationwide by mid-2009. Called Fruit2Day, they offer a "surprising and convenient way" to enjoy fruit, and include real bits of fruit that are both sipped and chewed. They will represent the first product of their kind in U.S. stores.

Hero Group's operations are based primarily in Europe, North America and Middle East/Africa. In North America, in addition to Beech-Nut, it offers decorative/seasonal products (Cake Mate, Pass, Pumpkin Masters and Houston Harvest) and jams (Hero).

Meanwhile, Dean announced extremely solid results for the third quarter.

Dean's earnings per diluted share on an adjusted basis rose to $0.28--a 100% increase versus $0.14 in last year's third quarter. Its adjusted net income from continuing operations jumped 113% to $43.5 million, versus $18.7 million for the same period last year.

For the first nine months, Dean's diluted earnings per share rose to $0.77 versus $0.71 in 2007's first nine months. Net income rose to $117.5 million, versus $97.9 million in last year's first three quarters.

Dean's DSD Dairy business--the nation's largest producer and distributor of milk and other dairy products--saw net sales increase 1% during the third quarter to $2.52 billion, and operating income rise 21% to $140.4 million. Milk volume growth (3.2%) and lower raw-dairy commodity costs compared with same-period '07 contributed to the results.

Dean's WhiteWave-Morningstar business saw net sales grow 8.6% to $671.3 million, but operating profit decline by 4%.

Net sales grew in all of WhiteWave's key brands, including Land O' Lakes and International Delight (both had high single-digit gains), Silk (low double-digit gain) and Horizon Organic milk (up nearly 20%). In several segments, sales reflected higher volumes and increased distribution, rather than just price increases.

Silk--the best-selling soymilk line in the U.S., with about 67% of the worldwide soy milkmarket--also benefited from its integrated print and television marketing campaign highlighting the product's heart-health benefits, according to Dean. (The FDA declared soymilk a food that can help lower bad cholesterol back in 1999.) As advertising/marketing veteran Barry Silverstein points out at, Silk--which is now in 98% of U.S. grocery stores--also continues to use aggressive in-store sampling to broaden its consumer base.

Despite Horizon Organic milk's strong sales, its profitability continues to be hurt by rising organic milk input costs. Higher butter prices also contributed to WhiteWave's decline in profitability.

Analysts acknowledged Dean's strong performance despite challenges that included increasingly aggressive price discounting by competitors, as well as volatile raw materials costs. Management reiterated its original guidance for adjusted diluted earnings per share of at least $1.20 for the full year.

CEO Gregg Engles stressed that continued cost reductions and investments in technology and streamlined, geographically-targeted distribution systems, combined with the failures or absorption by Dean of competitors who price goods too cheaply, will result in Dean further differentiating itself as the "highest-quality/lowest-cost" milk supplier in the country. While "interim" challenges are ongoing, "beyond the interim term, I have never been more optimistic" about the company's prospects, Engles said.

However, management's projection that 2009 earnings will grow about 15% over this year (reflecting the structural investments and costs of bringing new products to market under the Hero joint venture) fell below analysts' 25% growth target, causing Dean's stock to decline after the morning financials conference call.

Next story loading loading..