Dean Foods Cutting 600-700 Jobs Because of Imaginery Inflation

Ok I don't know much about Dean Foods (DF) other than it has to do with milk. But post close an announcement about a 2% job cut in its work force - not massive mind you but "at the edge" of the economy we are starting to see effects from "imaginary" inflation. Also a profit squeeze. As predicted. (I have been saying this is going to hit restaurant stocks in the wazoo)

Some of the comments from management are what really struck me. Luckily inflation is just a figment of the CEO's imagination since as we all know the government has reassured us of this. Here is that world famous "substitution effect" - i.e. when steak is too expensive consumers move to hamburger - and since hamburger is cheaper than steak, inflation actually "fell". That's the government's take anyhow.

• DALLAS (AP) -- Dean Foods Co., the nation's largest dairy producer, scaled back its profit forecast for the year, saying record-high milk prices are hurting sales and causing consumers to switch from name brands to cheaper private-labels products.
• The company also said Tuesday it plans to cut 600 to 700 jobs, more than 2 percent of its work force.
• The dairy producer now expects profit after one-time gains and charges to be 15 cents per share in the third quarter, down from 24 to 28 cents per share. Dean cut its full-year forecast to $1.25 per share from $1.52 to $1.58 per share.
• Milk and ice cream prices have been surging this year. The national average price for a gallon of whole milk rose from $3.29 in January to $3.87 in August, according to the U.S. Department of Agriculture. (keep in mind, my math says 17.7% inflation, government math says 1.8%)
• Jack Callahan, Dean's chief financial officer, said dairy sales have softened in the face of higher prices -- although he didn't give figures. He also said consumers were shifting from brand names to store private-label products. Analysts said the branded items are more profitable for Dean. (my math says thats bad for stocks facing the US consumer, the market's math says Fed cuts solve everything)
• Analysts and economists give different reasons for the price increase. Most say it's largely because of growing demand for dairy products in China and elsewhere in Asia. Some say another factor is higher costs for corn used by dairy farmers, although others call that a red herring. (my math says, does it really matter why? It is all a figment of our collective imagination as the government has told us we have 2% inflation)
• Leslie Butler, a dairy economist at the University of California at Davis, said it doesn't take much of an increase in exports -- just a few percent -- to drive up prices at home. Exports rose to 11.2 percent of the nation's milk production in the first six months of this year, up from 7.5 percent in 2004, according to the U.S. Dairy Export Council.
• Roger Hoskin, an economist with the U.S. Department of Agriculture, said rising production should bring prices down next year -- but not dramatically. "If people expect that prices are going back to where they were a couple years ago, that ain't gonna happen," he said. "The demand is there, and a lot of it foreign."
• Companies that use lots of dairy products say they already notice the higher prices. Starbucks Corp. raised prices on its lattes and other drinks this summer, citing higher dairy costs. The J.M. Smucker Co., the jam and jelly company whose brands include Pillsbury and Hungry Jack, said higher milk costs cut into earnings.
• And last month, Standard & Poor's lowered its credit rating on Hershey Co. -- potentially raising Hershey's cost of borrowing -- due to the candy maker's exposure to dairy prices.
• Gregg Engles, the chairman and chief executive of Dallas-based Dean, said high dairy commodity costs have created the most difficult challenges the company has ever faced, "and 2007 results have been well short of our expectations.

Normally this would alarm me, but remember, the market has priced this all in. Consumers pinched. Profit margins hurt. All priced in. All of it. Every drop. The market says so. Ben told me.

Normally I'd go on a rant... you know. Canary. Coal Mine. Last I checked in a slowing economy, we should not have much inflation. That's econ 101 - unless we are talking stagflation. I was too young the last time that happened but I read it was pretty ugly. Normally I'd mentioned the cadre of stocks named above as 'collateral damage' - wow some nice potential shorts there; however shorting is un-American (and un-Chinese); this was outlawed on Aug 16th.

But I won't rant. Instead I will watch economist in chief below and just smile in blissful ignorance as I watch the market rocket to daily highs. Ahhhhh.....