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Dean Foods (DF) Down 2.2% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Dean Foods Company (DF - Free Report) . Shares have lost about 2.2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is DF due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Dean Foods Q1 Earnings and Sales Beat Estimates

Dean Foods reported better-than-expected results for the first quarter of 2018. With this, the company bucked the trend of earnings miss/in-line earnings in the preceding seven quarters. Also, sales beat estimates after three straight quarters of miss. Further, management reiterated its full-year adjusted earnings guidance.

Q1 in Detail

Dean Foods’ quarterly adjusted earnings of 14 cents per share surpassed the Zacks Consensus Estimate of 12 cents and grew 7.7% from 13 cents in the year-ago quarter.

However, on a GAAP basis, the company posted breakeven loss per share narrower than a loss per share of 11 cents in the prior-year period.

Net sales dipped 0.8% year over year to $1,980.5 million but beat the Zacks Consensus Estimate of $1,838 million. Volume and mix results were in-line with the company’s expectations. Further, raw milk costs were down 16% year over year and nearly 13% on a sequential basis.

Moreover, adjusted gross profit declined 4% to $448.5 million mainly due to soft volume and greater mix of private label products. Adjusted operating income decreased 11.1% to $35.8 million in the first quarter.

In fact, Dean Foods has long been grappling with lower product volumes, higher raw milk costs and loss of share in U.S. fluid milk volumes, which has been largely impacting its top line.

Financial Position

Dean Foods ended the quarter with cash and cash equivalents of $28.1 million, long-term debt (including current maturities) of $907.2 million and shareholders’ equity of $650.4 million. Total debt outstanding, excluding cash on hand, was nearly $884 million as of Mar 31, 2018.

In first-quarter 2018, the company generated nearly $39 million of net cash from operating activities and $22.4 million of free cash flow from continuing operations.

The company deployed roughly $17 million as capital expenditures in the reported quarter. As of Mar 31, 2018, Dean Foods’ net debt to bank EBITDA total leverage ratio on an all cash-netted basis came in at 2.68 times, which remained flat with fourth-quarter 2017.

Outlook

Management remains impressed with its quarterly results and is focused on executing commercial strategies and cost productivity initiatives. Additionally, the company’s enterprise-wide productivity program to boost operational excellence is impressive. The productivity program mainly focuses on three areas, including enhancement of supply-chain network, optimizing spending across all key categories to ensure greater efficiency, and integration of operating model along with minimizing general and administrative expenses.

Dean Foods is likely to start the next phase of the plan that aims at rightsizing the company’s network to drive volume. Management is also implementing plans to alleviate headwinds in non-dairy input costs while continuing to boost its brands and private label business.

That said, Dean Foods reaffirmed its adjusted earnings per share in the range of 55-80 cents for 2018 versus 80 cents in 2017. Further, it continues to project free cash flow in the band of $30-$50 million. The company still anticipates spending nearly $135-$160 million of capital expenditures for 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to three lower. Last month, the consensus estimate has shifted downward by 7.7% due to these changes.

Dean Foods Company Price and Consensus

 

VGM Scores

At this time, DF has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, DF has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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