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Will Milk Costs & Volumes Mar Dean Foods (DF) Q3 Earnings?
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Dean Foods Company is scheduled to release third-quarter 2017 results on Nov 7. Last quarter, the company delivered a negative earnings surprise of 30%.
In fact, Dean Foods has missed our estimate for three consecutive quarters now, with an average negative surprise of 15.2% in the trailing four quarters. Let’s see how things are shaping up prior to this announcement.
The question lingering in investors’ minds now is whether Dean Foods will be able to post positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the quarter under review is 20 cents per share, reflecting a 44.9% year-over-year decline. We note that the Zacks Consensus Estimate for the current quarter has been going down ahead of the earnings release. Analysts polled by Zacks expect revenues of $1.97 billion, up 0.4% from the year-ago quarter.
Furthermore, we note that the stock has underperformed the broader industry in the last one month. The company’s shares have declined 12.3%, while the industry dropped 7.8%.
Factors at Play
Dean Foods’ performance remains challenged by rising competition and escalated raw milk costs. The company’s business is heavily dependent on commodities such as raw milk, soybeans, diesel fuel and others, the prices of which often fluctuate. Consequently, any rise in their prices will hurt margins.
The company’s performance in the last reported quarter was largely dented by increased raw milk costs along with lower volumes. In second-quarter 2017, total volumes dipped 2.7% to 615 million gallons and lagged the Zacks Consensus Estimate of 626 million gallons. Moreover, the company is facing severe competition from other dairy products suppliers due consolidations in the retail grocery industry.
The company expects these obstacles to persist throughout the rest of 2017, as reflected in management’s curtailed earnings guidance. Raw milk expenses are expected to inflate 8% sequentially, and 11% year over year in the third quarter. Further, the Zacks Consensus Estimate for total milk volumes is 624 million gallons, lower than a volume of 651 million gallons in the prior-year quarter.
While the aggressive cost-saving initiatives are anticipated to address the hurdles associated with unfavorable volumes and mix, these challenges are likely to be more intense in the second half of 2017. Consequently, adjusted earnings are envisioned in a range of 80-95 cents per share, much lower than the earlier forecast of $1.35-$1.55.
Nonetheless, Dean Foods remains on track to speed up its commercial and cost productivity efforts, to enhance volumes and mix. This is evident from the company’s plans of expanding cost productivity program, which should aid in achieving additional savings of $40-$50 million annually.
What the Zacks Model Unveils?
Our proven model does not conclusively show that Dean Foods is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Dean Foods has an Earnings ESP of +5.39% as the Most Accurate Estimate of 22 cents is pegged higher than the Zacks Consensus Estimate of 20 cents. However, this combined with the company’s Zacks Rank #4 (Sell) makes surprise prediction difficult. Note that we caution against Sell-rated stocks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks Poised to Beat Earnings Estimates
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
The Home Depot Inc. (HD - Free Report) currently has an Earnings ESP of +0.76% and a Zacks Rank #2.
Inter Parfums, Inc. (IPAR - Free Report) has an Earnings ESP of +3.56% and a Zacks Rank #2.
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Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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Will Milk Costs & Volumes Mar Dean Foods (DF) Q3 Earnings?
Dean Foods Company is scheduled to release third-quarter 2017 results on Nov 7. Last quarter, the company delivered a negative earnings surprise of 30%.
In fact, Dean Foods has missed our estimate for three consecutive quarters now, with an average negative surprise of 15.2% in the trailing four quarters. Let’s see how things are shaping up prior to this announcement.
Dean Foods Company Price and EPS Surprise
Dean Foods Company Price and EPS Surprise | Dean Foods Company Quote
What to Expect?
The question lingering in investors’ minds now is whether Dean Foods will be able to post positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the quarter under review is 20 cents per share, reflecting a 44.9% year-over-year decline. We note that the Zacks Consensus Estimate for the current quarter has been going down ahead of the earnings release. Analysts polled by Zacks expect revenues of $1.97 billion, up 0.4% from the year-ago quarter.
Furthermore, we note that the stock has underperformed the broader industry in the last one month. The company’s shares have declined 12.3%, while the industry dropped 7.8%.
Factors at Play
Dean Foods’ performance remains challenged by rising competition and escalated raw milk costs. The company’s business is heavily dependent on commodities such as raw milk, soybeans, diesel fuel and others, the prices of which often fluctuate. Consequently, any rise in their prices will hurt margins.
The company’s performance in the last reported quarter was largely dented by increased raw milk costs along with lower volumes. In second-quarter 2017, total volumes dipped 2.7% to 615 million gallons and lagged the Zacks Consensus Estimate of 626 million gallons. Moreover, the company is facing severe competition from other dairy products suppliers due consolidations in the retail grocery industry.
The company expects these obstacles to persist throughout the rest of 2017, as reflected in management’s curtailed earnings guidance. Raw milk expenses are expected to inflate 8% sequentially, and 11% year over year in the third quarter. Further, the Zacks Consensus Estimate for total milk volumes is 624 million gallons, lower than a volume of 651 million gallons in the prior-year quarter.
While the aggressive cost-saving initiatives are anticipated to address the hurdles associated with unfavorable volumes and mix, these challenges are likely to be more intense in the second half of 2017. Consequently, adjusted earnings are envisioned in a range of 80-95 cents per share, much lower than the earlier forecast of $1.35-$1.55.
Nonetheless, Dean Foods remains on track to speed up its commercial and cost productivity efforts, to enhance volumes and mix. This is evident from the company’s plans of expanding cost productivity program, which should aid in achieving additional savings of $40-$50 million annually.
What the Zacks Model Unveils?
Our proven model does not conclusively show that Dean Foods is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Dean Foods has an Earnings ESP of +5.39% as the Most Accurate Estimate of 22 cents is pegged higher than the Zacks Consensus Estimate of 20 cents. However, this combined with the company’s Zacks Rank #4 (Sell) makes surprise prediction difficult. Note that we caution against Sell-rated stocks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks Poised to Beat Earnings Estimates
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
Ross Stores Inc. (ROST - Free Report) currently has an Earnings ESP of +0.27% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Home Depot Inc. (HD - Free Report) currently has an Earnings ESP of +0.76% and a Zacks Rank #2.
Inter Parfums, Inc. (IPAR - Free Report) has an Earnings ESP of +3.56% and a Zacks Rank #2.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>