"We had to close our large dairy in Riyadh because we are selling almost nothing in the country," Arla Foods spokeswoman Astrid Gade Nielsen told AFP.
Arla Foods is Europe's second-largest dairy company and the leading Danish exporter to Saudi Arabia, where it sells an estimated two billion Danish kroner (2.5 billion Swedish kronor) worth of products every year.
Muslim anger over the cartoons, which depicted the Prophet Mohammed and were published in a Danish newspaper in September, has snowballed into a diplomatic crisis threatening trade relations with Europe.
The row has taken a new dimension over the past days, with Danish flags being burnt, products being boycotted and Copenhagen starting to take measures to protect its citizens living in Muslim countries.
The caricatures, including a portrayal of the prophet wearing a time-bomb shaped turban, were published in Danish daily Jyllands-Posten last September and reprinted in a Norwegian magazine in January.
Islam considers images of the prophet blasphemous.
Officials in Muslim countries and various religious bodies have voiced their indignation over the cartoons, while the editors of the newspapers have retorted they were simply exerting their freedom of expression.
Arla Foods said its production staff has not been laid off and Arla Foods executives have not been recalled.
The company was to have begun construction next week on a new dairy, but those plans have been postponed due to the current situation.
The boycott of Danish products, including Arla Foods, that began last week in Saudi Arabia has now spread to Algeria, Bahrein, Jordan, Kuwait, Morocco, Qatar, Tunisia, the United Arab Emirates and Yemen, Arla Foods said.