Dean Foods Company (DF - Free Report) touched a 52-week low of $2.02, before closing the session a tad higher at $2.03 on Apr 23. The company has long been grappling with escalated fuel, freight and resin costs, which along with volatility surrounding fluid milk volumes has been hurting its performance. Also, management suspended its financial outlook when it reported fourth-quarter 2018 results, as it is focused on speeding up its transformation plan and exploring other strategic options for the company, simultaneously.
Consequently, the Zacks Consensus Estimate has been witnessing a downtrend. Estimates for the current quarter and the current year have deteriorated by 3 cents and 5 cents to a loss of 17 cents and a loss of 39 cents, respectively, over the past 30 days.
In the past three months, shares of this Texas-based company have plunged 55%, against the industry’s decline of 50.7%. So, let’s take a closer look at the factors ailing the company’s performance.
Factors Impacting Dean Foods
Dean Foods has been struggling with lower volumes and loss of share in U.S. fluid milk volumes for a while now. During the fourth quarter, volumes declined significantly year over year, due to major customer exits and overall category softness. Per the USDA results, fluid milk category dropped 2.1% through December on a quarter-to-date basis. Also, soft volumes and escalated transitory costs dented Dean Foods’ adjusted gross profit and bottom line. Persistence of such trends is a concern.
Moreover, this Zacks Rank #5 (Strong Sell) company is battling significant input cost inflation. Evidently, escalated fuel, freight and resin costs as well as volatility surrounding fluid milk volumes negatively impacted the company’s margins in the last reported quarter. Also, a tight labor market due to limited driver availability impacted margins. These factors along with higher transitory costs related to plant closures and increased advertising expenses weighed on the results.
During the fourth quarter, the company’s raw milk prices went up 6% sequentially. Management anticipates Class I raw milk cost inflation of roughly 8% in the first quarter of 2019 and dairy commodity inflation for the full year. We believe that adverse fluctuations in raw-material prices pose threats to Dean Foods’ operating results.
Nevertheless, the company is working toward lowering costs through cost-productivity plan and strong pricing initiatives. Dean Foods has been taking strategic steps to optimize capital allocation, concentrate on core business activities and also diversify portfolio by moving beyond the pure milk products.
These efforts are likely to take time to completely offset the headwinds. Currently, the company’s dismal performance is a concern.
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