Top U.S. dairy company Dean Foods Co said it has stepped up efforts to cut expenses and may continue to raise prices as it battles higher commodity costs and weak demand at its fresh dairy products business.

Shares of the company were up 15 percent, after it reported a higher-than-expected first-quarter profit, and raised its full-year earnings forecast, helped partly by strong sales of its Horizon Organic branded milk.

Dean, which has been struggling with competition from cheaper private-label brands and rising costs of milk, has been reducing costs since 2009, and it expects to more than double its previous target of a $30 million cut in selling, general and administrative expenses from 2010.

As part of its efforts, Dean cut 140 jobs early in the second quarter. The company had about 27,000 employees, according to its website.

In the first quarter, sales at its WhiteWave-Alpro business, which sells Horizon Organic milk and Land O'Lakes creamers, rose 7 percent to $507 million and operating income was up 8 percent.

The company was also able to pass on higher commodity costs at its Fresh Dairy Direct-Morningstar segment, where demand fell.

Dean is raising prices off a low base, but the more salient point is that the well-established price pass-through mechanism in the fluid milk business is working as the pressure from retailers to discount prices is moderating, Wells Fargo analyst Eric Serotta said.

Serotta believes Dean will be able to pass on moderate price increases through this year -- barring an unforeseen spike in milk costs.

Dean said it is pursuing new business to offset soft volumes at the fresh dairy business, and the additional sales would mitigate some of the volume weakness starting from the current quarter.


For the first quarter, net income attributable to Dean Foods was $25.3 million, or 14 cents a share, compared with $43.2 million, or 24 cents a share, a year ago.

Net sales rose 3 percent to $3.05 billion.

Analysts, on average, had expected earnings of 6 cents a share, before special items, on revenue of $3.07 billion, according to Thomson Reuters I/B/E/S.

The company expects 2011 adjusted earnings of 67-75 cents a share, up from its previous outlook of 55-65 cents a share.

Shares of the company were up 15 percent at $12.68 on Tuesday morning -- making it the top gainer on the New York Stock Exchange.

(Reporting by Mihir Dalal in Bangalore;Editing by Vyas Mohan)