Back to top

Analyst Blog

The share price of Dean Foods Company (DF - Analyst Report) closed at $16.96 on October 17, 2012, 12.77% higher than the previous close of $15.04, after the company provided a positive update on its planned initial public offering (IPO) of its wholly-owned subsidiary – The WhiteWave Foods Company – along with a solid WhiteWave–Alpro segment’s preliminary sales result for third-quarter 2012. During the trading hours, the stock touched a high of $17.25.

Yesterday, the company announced that it has filed an amendment relating to its pending registration statement regarding the IPO of its wholly-owned subsidiary with the U.S. Securities and Exchange Commission ("SEC").

In August 2012, Dean Foods decided to go for an IPO of up to 20% of its wholly-owned subsidiary’s common shares and had also made relevant filings to register it with the SEC. Subsequent to the IPO, The WhiteWave Foods Company will own Dean Foods' WhiteWave-Alpro business, while Dean Foods will hold a minimum of 80% of The WhiteWave Foods Company's shares.

Additionally, Dean Foods intends to use the proceeds from the offering as well as about $800-$925 million, planned to be borrowed under The WhiteWave Foods Company’s new credit facility, to reduce its debt levels. Consequently, upon the closure of the transaction, the company expects to lower its year-end leverage ratio to nearly 3.5x debt to EBITDA, as defined by its credit agreements. The company expects to complete the transaction in the fourth quarter of 2012.

Concurrent to the filing update, Dean Foods also provided the preliminary sales results of its WhiteWave-Alpro segment for third quarter. Driven by robust volume growth, the company anticipates total sales of the segment to increase 13% to $598 million from $531 million in the year-ago period.

The year-over-year volume growth is primarily benefited from its continued focus on product innovation and increased marketing investments. Moreover, operating income is expected to increase by 22% to $64 million from $53 million in the prior-year period.

In an effort to concentrate on core business while enhancing the shareholders’ value, the company is going through a mega restructuring process. Last month, Dean Foods announced that it is looking for buyers for its Morningstar business. If it is able to finalize a deal, the company is likely to fetch around $1 billion.

Our Recommendation

We believe that Dean Foods has taken strategic steps to optimize its capital allocation and concentrate more on core businesses. The decision to go for an IPO for its subsidiary will provide Dean Foods access to capital for funding growth, enhance its liquidity position, maximize its value, and improve debt finance.

Moreover, Dean Foods continues to make headway in its efforts to achieve the lowest cost position in the industry. The company has benefited from its continued focus on cost reduction initiatives across the businesses.

On the flip side, in recent years, the consolidation of the retail grocery industry has led to increased competition among dairy product suppliers. In such a situation, Dean Foods faces stiff competition at the processor level in all major product lines and geographic markets. The company competes mainly with ConAgra Foods Inc. (CAG - Analyst Report).

Dean Foods currently has a Zacks #3 Rank, implying a short-term Hold rating. Moreover, we are maintaining a long-term Neutral recommendation on the stock.

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
GTT COMMUNI… GTT 11.65 +4.11%
ALLERGAN IN… AGN 161.82 +3.99%
CLAYTON WIL… CWEI 117.06 +3.73%
GREENBRIER… GBX 69.63 +2.37%
RF MICRO DE… RFMD 12.02 +2.04%