Based on the company's 9 consecutive quarters of reporting
better-than-expected bottom-line performance along with
impressive fiscal 2013 outlook, we have maintained our Neutral
Dean Foods Company
). However, we remain concerned about the uncertainty surrounding
the fluctuating raw milk prices and intense competition in the
dairy product sector.
Owing to improved sales and effective cost management, Dean
Foods' earnings of 40 cents per share for the fourth-quarter of
2012 jumped nearly 48% from the year-ago quarter and exceeded the
Zacks Consensus Estimate of 30 cents. The average positive
surprise in the trailing 9 quarters comes to 33.2%.
Dean Foods expects the momentum to continue across all its
business segments in fiscal 2013. Including the current 80%
ownership interest in
The WhiteWave Company
), Dean Foods anticipates earnings in the range of 22-27 cents
and $1.00-$1.10 per share in the first quarter and fiscal 2013,
respectively. The current Zacks Consensus Estimate for the first
quarter and fiscal 2013 stands at 25 cents and $1.09 per share,
Of late, fluid milk processing profits have been hit by
increasing money-offs on private label milk distribution as well
as weak sales volumes. In order to counter these headwinds, Dean
Foods has implemented strategies like price realization by
passing input cost inflation to customers, cost cuts and boosting
volume performance. These fundamental steps have facilitated it
to step up and rebuild profitability.
Moreover, the company has taken strategic steps to optimize
its capital allocation and concentrate on core business
activities. Consequently, during fiscal 2012, the company
divested its Morningstar business and reduced its ownership
interest in its wholly-owned subsidiary The WhiteWave
The net proceeds from these transactions were utilized to
retire all the remaining senior secured term debt of Dean Foods,
thereby reducing its leverage while increasing financial
flexibility to fund future growth opportunities.
On the flip side, Dean Foods' business is heavily dependent on
commodities such as raw milk, soybeans, diesel fuel and others.
The prices of these commodities heavily fluctuate; hence, any
adverse movement in prices of these commodities will certainly
hurt the company's margins. Further, Dean Foods is anticipating a
10% decline in raw milk prices in the upcoming quarter compared
with the fourth quarter of 2012; however, it will remain higher
than the first quarter of 2012.
While our recommendation on Dean Foods is based on various
positives mentioned above, soft economic recovery, threats of
competition and heavy dependence on a handful of customers keep
us on the sidelines. The company carries a Zacks Rank #3
Other Stocks Worth Considering
Other stocks worth considering in the food industry are
Flowers Foods, Inc.
J&J Snack Foods Corporation
). Both these companies hold a Zacks Rank #1 (Strong Buy).
DEAN FOODS CO (DF): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
J&J SNACK FOODS (JJSF): Free Stock Analysis
WHITEWAVE FOODS (WWAV): Free Stock Analysis
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