Shares in Dean Foods dropped more than 5% yesterday (8 May) after the US dairy group lowered its forecast for annual earnings following a loss in its first quarter.

The company booked a net loss of US$9m, or $0.09 a share, for the three months to the end of March. It made an adjusted diluted loss per share of $0.05. Operating income dropped 82% to $5m.

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Dean Foods attributed its worsening profitability to margin pressures and “all-time highs” in milk prices. It pointed to a 22% jump in raw milk prices.

Sales were flat at $2.3bn against the same period last year.

CEO Gregg Tanner predicted the second quarter to be “particularly difficult given historically high raw milk costs, continued overlaps of the RFP driven volume loss, and category declines that may be worse than recent run rates”.

“However, as we lap the most difficult challenges and our cost reduction efforts continue to take hold, we expect results to strengthen in the back half and exceed 2013 performance in the third and fourth quarters,” he said.

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Nevertheless, Tanner said the company was lowering its full-year adjusted diluted earnings per share forecast to “at least $0.60”. In February, Dean Foods forecast earnings per share of $0.73-0.86 for 2014

BB&T Capital Markets analyst Brett Hundley said the result was an indication that the group has reached “the cycle bottom”.

“In our opinion, and we see strong value in the stock at present levels,” he wrote in a note to investors. “Dean expects raw milk prices to begin falling in June, followed by further deflation during H2. NZ has had a strong production season, and European supplies have been moving materially higher. We expect US supplies to build further during the back half of 2014.”

Shares closed at $14.55 in New York, down 5.21%.