Fitch gives negative outlook Dean Foods, citing raw milk costs that led to 2nd-quarter loss

IndustriesAssociated Press

Fitch lowered its ratings outlook on the credit of Dean Foods Tuesday, a day after rising costs forced the milk producer to withdraw its guidance for the year.

Dean's credit rating is non-investment grade, also called "junk" status, according to Fitch Ratings. The revised outlook reflects the company's reduced free cash flow and its increased leverage, which Fitch believes is likely to rise. It said the situation could improve in 2015 as input costs come down.

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Dean Foods Co., based in Dallas, is the largest milk processor in the U.S., and its brands include Mayfield, Oak Farms and Tuscan. It is struggling with record prices for raw milk and on Monday the company reported a second-quarter loss, saying raw milk prices are up 31 percent compared with last year. It also forecast an adjusted loss in the third quarter, saying is facing its toughest business environment in the company's history.

Fitch lowered its outlook to negative from stable and backed its 'BB-' rating.

Shares dropped as much as 10 percent Monday, but closed with a smaller 3.9-percent loss. The stock edged up 6 cents to $15.26 in afternoon trading Tuesday.