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Will Dean Foods' (DF) Earnings Disappoint Again in Q2?

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Dean Foods Company (DF - Free Report) is scheduled to release second-quarter 2017 results on Aug 8. Last quarter, the company delivered a negative earnings surprise of 23.5%.

In fact, Dean Foods has missed our estimate in three of the trailing four quarters, with an average negative surprise of 8.4%. 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 30 cents per share, reflecting a 20% year-over-year decline. We note that the Zacks Consensus Estimate for the current quarter has been stable ahead of the earnings release. Analysts polled by Zacks expect revenues of $1.96 billion, up 6% from the year-ago quarter.

Furthermore, we note that the stock has underperformed the broader sector in the last one month. The company’s shares have declined 12.5%, while the Consumer Staples sector grew 2.3%.



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. Hence, any rise in their prices will hurt margins.

Though raw milk prices started declining from Dec 2014, the company witnessed escalated raw milk costs again in first-quarter 2017, both on a year-over-year and sequential basis. During the quarter, raw milk costs rose about 6% from fourth-quarter 2016 and jumped 18% from first-quarter 2016.

Moreover, the company is facing severe competition from other dairy products suppliers due consolidations in the retail grocery industry.

However, contributions from Friendly’s acquisition have been providing a boost to ice cream sales volumes. This is in turn aiding top-line growth. We also applaud the company’s efforts to grow in the organic space, which is evident from its recent deals with Good Karma and Organic Valley as well as the acquisition of Uncle Matt's juices. Further, its focus on cost productivity and growth plans bode well.

Additionally, the company remains on schedule with growth and productivity plans, and expects it to ramp up throughout 2017. Management remains committed toward taking strategic steps to optimize capital allocation and concentrate on core business activities. With such strategic initiatives in place, we can hope that Dean Foods would be able to lift its performance.

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. Dean Foods has an Earnings ESP of -13.33% as the Most Accurate estimate of 26 cents is lower than the Zacks Consensus Estimate of 30 cents per share. While the company’s Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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:

Dollar General Corp. (DG - Free Report) currently has an Earnings ESP of +0.93% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Clorox Co. (CLX - Free Report) currently has an Earnings ESP of +0.67% and a Zacks Rank #3.

Nordstrom Inc. (JWN - Free Report) has an Earnings ESP of +3.28% and a Zacks Rank #3.

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