Dean Foods, the biggest manufacturer of dairy products in the United States, has declared bankruptcy. The company filed for bankruptcy in compliance with Chapter 11. Did the relevant authorities see this coming?
The Dallas-based manufacturer has been performing poorly due to changes in customer preferences. More consumers have started opting for nondairy goods or are giving preference to private labels.
Is Dean Foods bankrupt?
On Tuesday, the company announced that it had filed for bankruptcy. The largest manufacturer of dairy in the country claims that it took the necessary steps in accordance with Chapter 11 in order to retain the business.
The unfunded debt obligations and debts will be addressed in due time. The management desires to sell the company. The company had been in financial distress for a while. It resorted to debtor-in-possession financing and thus secured commitments worth approximately $850 million.
The company claims that customers will not suffer despite the hard times the industry is undergoing. It promises that people who used to purchase their dairy products will have access to them as usual without any interruptions in the delivery and retail.
The company has also made it public that it has already conducted ‘advanced discussions’ with farmers who deal with dairy in the United States. The intention and purpose of these discussions was the desire of the management to sell a substantial part, if not almost all, of the company’s assets. The declaration of bankruptcy may be a good turn for those who want to purchase those assets.
It is worth noting that in September, the company was still against selling its assets. The chief experts from the company conducted a number of reviews and decided not to sell anything. Several months later, the situation is different.
The industry has been struggling for a while now. More Americans are turning to nondairy diets or, if they do purchase milk, they give preference to private labels and retailers. According to statistical data, the consumption of milk in the United States has dropped from 23 gallons per capita to 17 gallons within the last two decades.
In 2017, Dean Foods experienced severe competition, as Walmart started to process milk on their own. This upheaval forced the Dallas manufacturers to cancel more than a hundred of contracts they had with milk farms in eight states. The problem was aggravated by the fact that Food Lion (a chain of grocery stores) decided to break their cooperation with the milk producer the following year.
All this has caused constant losses. Seven out of the recent eight quarters brought the company nothing but losses. As reported, the company, which has been in existence for 94 years, faced a profit fall by 14% in the first half of 2019. Their sales tumbled to 7%. 80% of the stock the company possessed went to waste.
The company decided to file for bankruptcy after being unable to pay out pensions for its workers. Following the recommendations in Chapter 11 will help the company to reorganize its intrnal affairs. Hopefully, all will be well soon.
The bankruptcy of Dean Foods is a sharp blow to both the consumers and the company's staff. Farmers who had contracts with the firm are facing tough times. They have been struggling with the changes in the dairy market at large because both the industry and the suppliers are facing significant changes in the business cycle.