Dean Foods Co. (DF) recently announced its financial results for the first-quarter of fiscal 2011.
Street analysts had a week to ponder the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.
Earnings Review
Dean Foods’ adjusted earnings per share for the first quarter fiscal 2011 came in at 14 cents, well behind 23 cents recorded in the year-ago quarter but beating the Zacks Consensus Estimate of 6 cents a share.
Dean Foods’ quarterly net sales grew 2.9% year over year to $3,049.9 million, missing the Zacks Consensus Estimate of $3,058.0 million. The growth was primarily a pass-through of increased commodity costs at Fresh Dairy Direct-Morningstar to consumers in the form of higher prices and record top-line performance at WhiteWave-Alpro that were partially offset by weedy volume at Fresh Dairy Direct-Morningstar.
(Read our full coverage on this earnings report: Mixed Results from Dean Foods)
Agreement of Estimate Revisions
Over the last 7 days, 12 out of 13 analysts moved their estimates upward with no negative revisions for the second quarter of fiscal 2011. This implies that the majority of analysts are positive on the outlook and do not foresee any downward pressure on forthcoming results. For fiscal 2011, all 15 analysts revised their estimates upward with no downward movement by any analyst over the past one week.
Magnitude of Estimate Revisions
With an overwhelmingly upward bias to estimate revisions by analysts in the last 7 days, the Zacks Consensus Estimates, for the second quarter of fiscal 2011 and fiscal 2011, have gone up a corresponding 4 cents and 14 cents to 17 cents and 71 cents a share, respectively.
Our Recommendation
Dean Foodsis a leading processor and distributor of milk and other dairy products in the U.S. as well as a leading manufacturer of various specialty food products. The company continues to make headway in its efforts to achieve the lowest cost position in the industry. Management’s plans to reduce headcount by 350 to 400 positions have led to approximately $25 million in annualized cost savings in 2010. The company also intends to move aggressively toward streamlining its cost structure and target total cost savings of $125 million in 2011 and $300 million over a period of three-to-five years.
The acquisition of Alpro is expected to drive sales at the WhiteWave–Alprosegment. Alpro is the European leader in branded soy-based beverage and food products with strong brands like Alpro soya and Provamel. Demand for soy and organic foods has increased rapidly due to growing awareness among consumers about the health benefits of the same. The acquisition of Alpro has provided Dean Foods a significant opportunity to expand into new markets across the European Union.
On the other hand, Dean Foods’ recent decision to divest its milk processing and related businesses situated in Waukesha, Wisconsin will certainly hurt its top line as the company has more than 60% of market share in the region. The divestment decision is a part of antitrust dispute settlement agreement between the company and the U.S. Department of Justice (DOJ) and the states of Wisconsin, Illinois and Michigan.
Dean Foods, which competes with Kraft Foods Inc. (KFT), currently has a Zacks #3 Rank, implying a short-term Hold rating on the stock. Besides, we retain a long-term Neutral recommendation on the stock.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
DEAN FOODS CO (DF): Free Stock Analysis Report
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