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Dean Foods (DF) Falls on Q2 Earnings Miss; Sales Surpass
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After delivering earnings beat in five straight quarters, Dean Foods Company reported a mixed second-quarter 2016, wherein earnings missed estimates while sales surpassed. The bottom-line miss can be attributed to a year-over-year decline in sales due to lower volumes. Consequently, shares of this Dallas-based food and beverage company fell 3.5% to $18.16 per share yesterday.
However, earnings in the quarter continued to gain from lower raw milk prices, which helped Dean Foods’ profits to rise compared with last year. The company’s adjusted earnings of 38 cents per share in second-quarter 2016 surged 15.2% from 33 cents in the year-ago quarter but fell short of the Zacks Consensus Estimate of 39 cents. Notably, earnings for the quarter came in at the higher end of the company’s guidance range of 32–40 cents.
On a GAAP basis, the company’s earnings came in at 36 cents per share as against 28 cents reported in the year-ago quarter.
Quarter in Detail
Net sales declined 8.2% year over year to $1,848.8 million, while surpassing the Zacks Consensus Estimate of $1,836 million. This marked the company’s second consecutive sales beat after five quarters of lower-than-expected results. The year-over-year decline in the top line was due to soft volumes, which dropped 3.2% to 632 million gallons from 653 million gallons in the prior-year quarter.
However, raw milk costs improved during the reported quarter and fluid milk volumes rose on a sequential basis. As expected, the Class I Mover, which is a measure of raw milk expenses, fell 7% sequentially and 15% year over year to $13.53 per hundred-weight. Further, USDA data through May revealed that fluid milk volumes improved sequentially, recording a 0.1% increase in second-quarter 2016 compared with a 0.6% decline in first-quarter 2016.
Adjusted gross profit fell 1.2% to $490 million, while the adjusted operating income jumped nearly 4.5% to $70 million in the second quarter.
Financial Position
Dean Foods ended the quarter with cash and cash equivalents of $23.8 million, long-term debt including current maturities of about $908.8 million, and shareholders’ equity of $580.7 million.
During the first half of 2016, the company generated nearly $125.3 million of net cash from operating activities and $79.6 million of free cash flow after investing roughly $45.8 million as capital expenditure.
At the end of second-quarter 2016, the company's net debt to bank EBITDA ratio was 2.0 times, representing a sequential improvement.
Other Developments
On Jun 20, 2016, Dean Foods completed the acquisition of Friendly’s Ice Cream – a retail and manufacturing ice cream business, from Friendly’s Restaurants. This acquisition is likely to enhance Dean Foods’ already strong ice cream business, which includes famous brands like Mayfield and Dean’s Country Fresh. The company is sponsoring this $155 million deal, with cash and its current revolving facilities.
Outlook
Management remains impressed with Dean Foods’ progress, given its solid operational and financial performance in the reported quarter. Looking ahead, management expects the average Class I Mover for third-quarter 2016 to come in at $15 per hundred-weight, representing an 11% increase sequentially but an 8% decline year over year.
The company’s total volume for the third quarter is anticipated to dip in the low-single digits, while representing an improvement from current trends.
Considering all the aforementioned factors, management expects third-quarter 2016 adjusted earnings to range from 32–40 cents a share, while GAAP earnings are expected to be in the range of 28–36 cents.
Dean Foods currently carries a Zacks Rank #1 (Strong Buy). Other well-placed stocks in the consumer staples sector include B&G Foods Inc. (BGS - Free Report) , Ingredion Incorporated (INGR - Free Report) and Omega Protein Corporation , each carrying a Zacks Rank #1.
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Dean Foods (DF) Falls on Q2 Earnings Miss; Sales Surpass
After delivering earnings beat in five straight quarters, Dean Foods Company reported a mixed second-quarter 2016, wherein earnings missed estimates while sales surpassed. The bottom-line miss can be attributed to a year-over-year decline in sales due to lower volumes. Consequently, shares of this Dallas-based food and beverage company fell 3.5% to $18.16 per share yesterday.
However, earnings in the quarter continued to gain from lower raw milk prices, which helped Dean Foods’ profits to rise compared with last year. The company’s adjusted earnings of 38 cents per share in second-quarter 2016 surged 15.2% from 33 cents in the year-ago quarter but fell short of the Zacks Consensus Estimate of 39 cents. Notably, earnings for the quarter came in at the higher end of the company’s guidance range of 32–40 cents.
On a GAAP basis, the company’s earnings came in at 36 cents per share as against 28 cents reported in the year-ago quarter.
Quarter in Detail
Net sales declined 8.2% year over year to $1,848.8 million, while surpassing the Zacks Consensus Estimate of $1,836 million. This marked the company’s second consecutive sales beat after five quarters of lower-than-expected results. The year-over-year decline in the top line was due to soft volumes, which dropped 3.2% to 632 million gallons from 653 million gallons in the prior-year quarter.
However, raw milk costs improved during the reported quarter and fluid milk volumes rose on a sequential basis. As expected, the Class I Mover, which is a measure of raw milk expenses, fell 7% sequentially and 15% year over year to $13.53 per hundred-weight. Further, USDA data through May revealed that fluid milk volumes improved sequentially, recording a 0.1% increase in second-quarter 2016 compared with a 0.6% decline in first-quarter 2016.
Adjusted gross profit fell 1.2% to $490 million, while the adjusted operating income jumped nearly 4.5% to $70 million in the second quarter.
Financial Position
Dean Foods ended the quarter with cash and cash equivalents of $23.8 million, long-term debt including current maturities of about $908.8 million, and shareholders’ equity of $580.7 million.
During the first half of 2016, the company generated nearly $125.3 million of net cash from operating activities and $79.6 million of free cash flow after investing roughly $45.8 million as capital expenditure.
At the end of second-quarter 2016, the company's net debt to bank EBITDA ratio was 2.0 times, representing a sequential improvement.
Other Developments
On Jun 20, 2016, Dean Foods completed the acquisition of Friendly’s Ice Cream – a retail and manufacturing ice cream business, from Friendly’s Restaurants. This acquisition is likely to enhance Dean Foods’ already strong ice cream business, which includes famous brands like Mayfield and Dean’s Country Fresh. The company is sponsoring this $155 million deal, with cash and its current revolving facilities.
Outlook
Management remains impressed with Dean Foods’ progress, given its solid operational and financial performance in the reported quarter. Looking ahead, management expects the average Class I Mover for third-quarter 2016 to come in at $15 per hundred-weight, representing an 11% increase sequentially but an 8% decline year over year.
The company’s total volume for the third quarter is anticipated to dip in the low-single digits, while representing an improvement from current trends.
Considering all the aforementioned factors, management expects third-quarter 2016 adjusted earnings to range from 32–40 cents a share, while GAAP earnings are expected to be in the range of 28–36 cents.
DEAN FOODS CO Price, Consensus and EPS Surprise
DEAN FOODS CO Price, Consensus and EPS Surprise | DEAN FOODS CO Quote
Zacks Rank
Dean Foods currently carries a Zacks Rank #1 (Strong Buy). Other well-placed stocks in the consumer staples sector include B&G Foods Inc. (BGS - Free Report) , Ingredion Incorporated (INGR - Free Report) and Omega Protein Corporation , each carrying a Zacks Rank #1.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>