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Dean Foods (DF) Down 5.9% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Dean Foods CompanyDF . Shares have lost about 5.9% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Dean Foods Misses on Q1 Earnings, Reiterates Outlook

Dean Foods posted first-quarter 2017 results, wherein the company's quarterly adjusted earnings of $0.13 per share lagged the Zacks Consensus Estimate of $0.17 and declined 71.1% year over year. Further, earnings for the quarter were at the lower end of the company's guidance range $0.12-$0.20 per share.

On GAAP basis, the company posted a loss of $0.11 per share, against earnings of $0.45 reported in the year-ago quarter.

Deeper Insight

Net sales advanced 6.2% year over year to $1,995.7 million, and surpassed the Zacks Consensus Estimate of $1,964 million. However, total volumes of 633 million gallons dipped 1.3% from 641 million gallons in the prior-year quarter.

For the first quarter, raw milk costs escalated both sequentially, as well as on a year-over-year basis. Raw milk costs rose about 6% from fourth-quarter 2016 and jumped 18% from first-quarter 2016. Also, the Class I Mover, which is a measure of raw milk expenses, has displayed a sequential improvement in the second quarter, while the same has increased year over year.

Further, the milk category remained soft as the USDA data through Feb 2017 revealed that fluid milk volumes dipped 1.8% year over year, on adjusting for the additional Leap day last year. However, Dean Foods' share of U.S. fluid milk volumes increased 10 basis points year over year.

In the non-fluid milk product space, ice cream volumes gained 19%, mainly backed by contributions from the recently acquired Friendly's business.

Adjusted gross profit declined 7.9% to $465 million, while the adjusted operating income collapsed by 573.8% to $35 million in the first quarter.

Financial Position

Dean Foods ended the quarter with cash and cash equivalents of $31.6 million, long-term debt including current maturities of about $891.7 million, and shareholders' equity of $595 million.

During the quarter, the company generated nearly $27.6 million of net cash from operating activities and $19 million of free cash flow. This reflects Dean Foods' tenth straight positive free cash flow. The company deployed roughly $8 million as capital expenditure in the first quarter.

At the end of first-quarter 2017, the company's total leverage was 2.09 times, as compared with 1.89 times as of the end of 2016. This stemmed from lower net debt and bank EBITDA (on a sequential basis).

Other Developments & Outlook

The company remains on track with its "OpEx 2020" cost productivity plan, which is aimed at generating annual savings in a range of $80-$100 million, by reducing waste in the organization. In this regard, Dean Foods enhanced its safety scores, improved the percentage of fluid shrink and completed designing its supply-chain network, in the first quarter.

Further, Dean Foods introduced DairyPure sour cream in March, thus enhancing DairyPure's product line. This is likely to raise consumer demand and draw more customers. The goal behind this deal is similar to Dean Foods' other contracts including its joint venture with Organic Valley dairy brand owner - CROPP.

Further, the company inked a distribution deal with flax-based milk and yogurt products manufacturer - Good Karma, last week. This investment will help Dean Foods to expand operations into plant-based dairy choices and boost growth. Moreover, to strengthen its sales and market capacities, the company entered into an alliance with Acosta - which is the top sales agency in the country.

We believe that these efforts, along with Dean Foods' constant product innovations and strategic partnerships should attract more consumers and boost its top line. All said, the company remains on schedule with its growth and cost productivity plans, and expects it to ramp up throughout 2017.

With these actions underway, the company reiterated its 2017 outlook wherein it expects to deliver adjusted earnings per share in the range of $1.35-$1.55.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter. In the past month, the consensus estimate has shifted downward by 12.3% due to these changes.

Dean Foods Company Price and Consensus

Dean Foods Company Price and Consensus | Dean Foods Company Quote

VGM Scores

At this time, Dean Foods' stock has a subpar Growth Score of 'D', while it is doing a bit better on the momentum front with 'C'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is more suitable for value than momentum based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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