Dean Foods witnessed declining profits during 2010, as margins at the US dairy group’s fresh dairy business were dented by US consumers turning to non-branded milk products.

Net income totalled US$91m for the full year, compared with $240m in the previous year. On an adjusted basis, net income totalled $147m, compared to $277m in 2009, with legal settlements and tax charges weighing on the group’s earnings. Gross margin fell to 24% from 26.8%.

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Net sales for the 12 months ended 31 December rose to $12.1bn, up from $11.1bn last year. However, margins were hit as Dean Foods struggled to compete with cheaper non-branded dairy products.

“2010 was an exceptionally difficult year for Dean Foods, and our fourth-quarter results reflect many of the same trends that have impacted the business all year,” chairman and CEO Gregg Engles said.

Dean Foods’ largest division, Fresh Dairy Direct-Morningstar, saw profit fall 30% despite a 5% sales increase, which was driven by pricing.

“At Fresh Dairy Direct-Morningstar, wholesale pricing for private label milk remained pressured during the quarter, and volume softened,” Engles revealed.

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Nevertheless, Engles insisted that the company has seen signs that the fluid milk category is “stabilising”.

“While we do not see meaningfully better industry conditions in 2011, we do see more stability returning to important aspects of our business, albeit stability at levels that imply lower earnings in Fresh Dairy Direct-Morningstar going forward,” Engles said.

Click here for the full press release and click here for coverage of Dean Foods’ conference call with Wall Street analysts.