Sector News

Dean Foods to buy Friendly’s Ice Cream

May 11, 2016
Food & Drink

Dean Foods Co. struck a deal to buy Friendly’s Ice Cream, deepening the milk company’s portfolio of dairy brands that can fetch higher profit than its commodity milk business.

Dean, the largest U.S. milk processor by volume, is investing in branded milk and ice cream as a way to insulate itself from swinging commodity prices and increased consumption of dairy alternatives, even as its first-quarter results got a lift from sliding raw-milk prices.

The Dallas-based company aims to purchase Friendly’s, which sells ice cream in about 8,000 grocery stores across New England, for $155 million in an all-cash deal that Dean Chief Executive Gregg Tanner said would fill a geographic gap in Dean’s ice-cream business and add new manufacturing capabilities. The deal is expected to close by July.

“Coupled with the momentum of our current regional brands, the Friendly’s franchise will be a catalyst for growth in our ice-cream business and our brand portfolio,” Mr. Tanner told analysts on a conference call discussing first-quarter financial results.

Ice cream generated $972 million in sales for Dean last year, about 12% of its revenue.

An affiliate of Sun Capital Partners Inc. will continue to own and operate the approximately 260 Friendly’s restaurant locations, Dean said.

Dean has been grappling with swinging raw-milk prices, which in recent years have pressured its profits, as dairy alternatives such as almond and soy milk claim more store shelf space and consumer dollars. In response, Dean has invested more in brands that can support premium prices, last year consolidating its 31 regional milk brands under a national brand called DairyPure. Recently, milk markets have moved in Dean’s favor.

The company reported Tuesday that a 14% drop in raw-milk prices from the first quarter last year, which reduced Dean’s expenses, helped it swing to a $39 million profit for the quarter ended March 31, compared with a $74 million loss a year earlier.

The profit, which came despite an 8.4% decline in revenue, topped analysts’ expectations. Dean shares fell 5 cents to $18.16 on Tuesday. The stock had fallen 9% in the three months before Tuesday’s results. Mr. Tanner said Dean expects milk prices to fall an additional 7% in the second quarter, as rising U.S. milk production and lower exports keep costs down for the company. The milk business still poses challenges for Dean as Wal-Mart Stores Inc. moves ahead with a plan to build its own Indiana milk-processing plant that would eliminate about 100 million gallons of private-label fluid milk business for Dean beginning in late 2017.

While Mr. Tanner said the move wouldn’t materially affect Dean’s profit, the company does plan to cut jobs to offset the lost business.

By Jacob Bunge

Source: Wall Street Journal

comments closed

Related News

December 3, 2022

AI central to Nestle’s innovation overhaul

Food & Drink

Nestle SA has accelerated its product development process by 60% since 2016, according to the company. The faster speed to market has been achieved through a restructuring of its research and development process. Now the company is investing in various forms of artificial intelligence (AI) and machine learning to further improve its R&D process and generate better results.

December 3, 2022

Takeover on the horizon? Brenntag makes preliminary indication of interest for Univar Solutions

Food & Drink

German chemicals distributor Brenntag has confirmed potential takeover talks with US rival Univar Solutions and is understood to be debating the feasibility of a potential acquisition in the coming months. Univar Solutions confirms that it has received a preliminary indication of interest from Brenntag regarding a potential transaction.

December 3, 2022

Cargill announces purchase of Owensboro Grain Company

Food & Drink

Cargill has announced the acquisition of Owensboro Grain Company, a soybean processing facility and refinery located in Kentucky. The purchase of the Owensboro-based company will support Cargill’s efforts to “modernise and increase capacity across its North American oilseeds network to support growing demand for oilseeds driven by food, feed and renewable fuel markets”.