Top 10 outlook

Dairy Field, Jun 2003

How the industry's leading players stay at the top.

The more things change, the cliche goes, the more they stay the same. Amid global tumult, acquisitions, innovations and expansions continue, particularly among the major players. But for the most part, dairy processors saw little or no growth in sales over the past year. So, the 2003 list of the top 10 processors looks very much like the one that ran in Dairy Field last July. In fact, the rankings are exactly the same.

The nation's milk supply far outweighed the demand in the past year. That, combined with an overall economic slump for U.S. business and uneasiness over foreign affairs, has yielded somewhat stagnant sales figures.

But things seem to be looking up. Data shows milk consumption, particularly among youths, remains on the rise. This has been helped along by the nationwide effort of educators and nutritionists fighting the battle of the bulge to restrict or eliminate soda and other unhealthy snacks in schools and replace them with milk - single serves in a variety of flavors and fortifications. Cheese courses with boutique offerings are all the rage among fashionable fine diners. And since September 11, Americans have been turning in greater numbers toward home and hearth - and comfort foods, including the ultimate of this category, macaroni and cheese.

Dean Foods, after its first full calendar year since its marriage with Suiza, remains at the top of the heap with more than $8 billion in annual sales - a rise of more than $2 billion since DF's 2002 ranking. Recently buttressed by key acquisitions, No. 6 Schreiber is giving centenarian Kraft, at No. 2, a run for its money with its burgeoning offerings of private-label natural cheese and cream cheese. Mozzarella giant Leprino has expanded on U.S. shores with its new mega-mozz plant in Lemoore, Calif. (said to be the world's largest), and is eyeing China as the next frontier in dairy growth. No. 5 National Dairy Holdings nearly vaulted close to the top with its planned merger with East Coast leader HP Hood, but in the end, anti-trust concerns led them to scale back their plans to mutual investments. Dairy Farmers of America, at No. 7, reported record milk production in 2002, and 10th-ranked Dreyer's Grand Ice Cream is in the throes of merger negotiations with Swiss food monolith Nestle.

All these changes, yet our Top 10 remains unshuffled.

It's a big dairy world out there, a world that's bound to get smaller as the trend toward consolidation continues. But though rankings may shrink, it should benefit the industry if production and corporate efficiencies improve and dairy consumption keeps rising.

1

Dean Foods Company

$8, 120.0 billion

Dallas, Texas

*Dean Foods Co. announced net income of $63.2 million for the quarter ending March 31,2003, compared with a loss of $29.6 million in the first quarter of 2002. Diluted earnings per share were 65 cents, compared with a loss of 23 cents per share in the first quarter of 2002. First quarter net sales totaled $2.1 billion, a decline of 4 percent over the first quarter of 2002. The decline was due primarily to lower raw material costs that are passed on to customers in the form of lower selling prices. "We again saw strong performance across all of our business units," said Gregg Engles, chairman and chief executive officer. "Our branded product efforts continued to bear fruit, as Morningstar/White Wave showed exceptional 32 percent volume gains in our strategic brand portfolio. Our growth and investment behind those brands were driven by strong operating profits and margins in our Dairy Group, Specialty Foods and International operations." In September 2002, the company reported cost savings of about $29 million during the second quarter of that year and anticipated benefits from its merger with Suiza Foods Corp. would boost its 2002 bottom line by $100 million.

*Dean Foods and Arden Hills, Minn,- based Land O'Lakes announced in August 2002 a new, expanded strategic alliance and licensing arrangement that will allow Dean Foods to use the Land O'Lakes brand name nationally on a broad range of value-added fluid milk and cultured dairy products, as well as on all basic fluid dairy products. In mid-August, the company, through its Morningstar Foods subsidiary, launched Land O'Lakes Dairy ease lactose-free milk, the first new product from the expanded relationship. The new agreement is an evolution of a 2-year-old joint venture arrangement (Dairy Marketing Alliance) designed to leverage the company's combined strengths.

*In October 2002, Dean Foods was named Dairy Field magazine's Processor of the Year, in recognition of its technological innovation and new product development. "In terms of industry growth in the basics of business, we're investing heavily in innovation and branding," said Gregg Engles, chairman and chief executive officer. "I believe investing in this area will ultimately lead to a rising consumption of dairy products." Through strategic acquisitions, Dean Foods has assembled a national network of processors, closed smaller plants and consolidated their operations into larger, more efficient facilities.