* Raises Q1 EPS view, cites improved commodity environment
* Targets $300 mln in cost savings in next 3-5 years
* Sees double-digit adj EPS growth for next 3 years
* Shares rise 5 percent (Adds background, details, updates share movement)
By Shivani Singh
BANGALORE, Feb 26 (Reuters) - Dean Foods Co (DF.N), the largest U.S. dairy company, raised its first-quarter profit forecast, citing improvement in the commodity environment, and said it plans to reduce costs by $300 million over the next three to five years, sending its shares up 5 percent.
An over-supply of milk and inadequate demand has led to milk prices plumetting down more than 50 percent from last year, after hitting life-time highs in 2007. [ID:nN5370249]
"The Class I Mover milk price will decline in March to $9.43 per hundredweight, which is the lowest price in recent memory," Chief Financial Officer Jack Callahan said.
Mover Milk is described as a kind of a base price for which Dean Foods and other dairy companies pay dairy farmers for milk.
The company plans to lower conversion costs across its manufacturing network of over a 100 plants and standardize and simplify its product portfolio, as part of its measures to reduce costs.
About $50 million of the costs savings will be from all areas of supply chain at its WhiteWave division, the company said.
"We believe the magnitude of the savings exceeds investor expectations," J.P. Morgan analyst Terry Bivens said in a note to clients. He has an "overweight" rating on the stock.
Analyst Farha Aslam of Stephens Inc said the cost-savings plan could result in earnings improvement of about $1.15 to $1.25 a share over the next three to five years.
"However, complex enterprise initiatives of this nature do have significant execution risk," said the analyst, who maintained an "equal-weight" rating and a price target of $21 on the stock.
For the first quarter, the company now expects adjusted earnings of at least 41 cents a share, up from its prior estimate of at least 38 cents. Analysts on average expected 40 cents, according to Reuters Estimates.
The Dallas, Texas-based company also raised its 2009 adjusted earnings outlook to at least $1.55 a share. Earlier in February, it had forecast a profit of at least $1.50 per share.
Analysts expected earnings of $1.57 a share, before items.
Dean Foods sees $300 million in capital expenditures in 2009, up from $257 million in 2008.
The company forecast operating income growth in the mid-single digits at its DSD Dairy division, and high-single to low-double digit growth at its WhiteWave-Morningstar division, over the next three years.
Dean Foods plans to reduce interest expense by reducing debt, which is expected to fuel double-digit earnings growth going forward, J.P. Morgan's Bivens said. Debt reduction will drive the remainder of the earnings per share growth, Stephens' Aslam said in a note to clients.
Total long-term debt was $4.49 billion at Dec. 31, 2008.
Shares of the company were down 12 cents at $20.39 in morning trade on the New York Stock Exchange. They had touched a high of $21.50 earlier in the session.
For the alerts, double click [ID:nWNAB7257] (Additional reporting by Bob Burgdorfer in Chicago; Editing by Deepak Kannan, Amitha Rajan)