On Aug 12, 2014, Zacks Investment Research downgraded Dean Foods Company (DF), a leading fresh milk and dairy products company, to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
The company has been witnessing a downtrend in estimates since it reported disappointing second-quarter 2014 bottom-line results, owing to high raw milk prices.
Dean Foods posted an adjusted loss of 14 cents per share from continuing operations contrary to adjusted earnings of 26 cents in the year-ago comparable quarter. The adjusted loss was also wider than the Zacks Consensus Estimate of a loss of 5 cents per share.
During the quarter, the company reported an adjusted operating loss of $5.9 million as against adjusted operating income of $64.7 million in the prior-year period, impacted by higher milk prices as mentioned above. During the reported quarter, the raw milk cost of Class I Mover registered a year-over-year increase of 31% and touched an all time quarterly high of $23.66 per hundred-weight.
Further, looking at the current industry volume trends, management expects higher raw milk prices and weak volumes in 2014. Therefore, the company withdrew its earnings guidance for 2014, for which it had earlier projected earnings of 60 cents per share. Additionally, Dean Foods expects to report adjusted loss in the range of 5 cents to 15 cents per share for the third-quarter of 2014.
The dismal performance coupled with a negative outlook triggered a downtrend in the Zacks Consensus Estimate, as analysts became less constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that fell 9.6% to 47 cents for 2014 and 0.9% to $1.09 per share for 2015 in the past 7 days.
However, the company received some respite from the adjusted net sales, which increased approximately 7.5% year over year to $2,393.9 million from $2,227.5 million in the prior-year quarter and went ahead of the Zacks Consensus Estimate of $2,341 million. The company’s market share of U.S. fluid milk sales volume increased 20 basis points (bps) year over year to 35.9%.
Other Stocks to Consider
Other stocks in the same sector that look promising and are expected to continue with their upbeat performance include Fresh Del Monte Produce Inc. (FDP), Sanderson Farms, Inc. (SAFM) and Pilgrim's Pride Corporation (PPC), each with a Zacks Rank #1 (Strong Buy).
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