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Bear of the Day: Dean Foods (DF)

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Dean Foods (DF - Free Report) is one of the largest processors and direct-to-store distributors of milk in the U.S., and markets their products under more than 50 local and regional dairy brands and private labels. Besides milk, Dean Foods distributes ice cream, cultured products, juices, teas, and bottled water.

Its brand portfolio includes DairyPure, TruMoo, Land O’ Lakes, Country Fresh, Meadow Gold, Dean’s, and many others.

Shares of Dean Foods have experienced volatile stretches throughout 2018, and the stock is down over 50% since the start of the year.

Disappointing Q3 Earnings

The stock took an especially big hit, falling 10%, after the company reported results for its third quarter.

Earnings swung to a loss, coming in at an adjusted loss of 28 cents per share and missing the Zacks Consensus Estimate if a loss of 6 cents.

Revenues of $1.89 billion managed to beat our consensus but was down from $1.94 billion last year.

One of the biggest factors affecting Q3 results was plant closures. Dean Foods closed and consolidated seven plants, and redistributed that volume into 23 other facilities.

Dean Foods also lowered its outlook for 2018, cutting EPS and cash flow guidance.

Because of these results, analysts have turned bearish on Dean Foods, with five cutting estimates in the last 60 days for the current fiscal year. The Zacks Consensus Estimate has dropped 46 cents during that same time period from $0.40 to a loss of 0.06 per share.

This sentiment has stretched into 2019, and our consensus estimate has dropped 50 cents in the past two months.

DF is now a Zacks Rank #5 (Strong Sell).

While Dean Foods does have an enterprise-wise cost productivity plan in place, the plant closures and transportation costs hit it hard in Q3.

The company is certainly dealing with some major headwinds, like competition from private-label brands, and the plant closures and transportation costs hit it hard in Q3. But Dean Foods does have an enterprise-wide cost productivity plan in place, which should help the dairy distributor going forward.

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