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Dean Foods (DF) Down 17.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Dean Foods (DF). Shares have lost about 17.1% in that time frame, underperforming the S&P 500.

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

Dean Foods Posts Wider-Than-Expected Q2 Loss

Dean Foods posted dismal second-quarter 2019 results. Adjusted loss from continuing operations amounted to 36 cents per share, significantly wider than the Zacks Consensus Estimate of a loss of 9 cents. Also, the bottom line compares unfavorably with the year-ago quarter’s earnings of 16 cents.

A persistent decline in fluid milk consumption and high raw milk costs were the main deterrents in the reported quarter. Class I raw milk costs rose 12% year over year and 6% sequentially. Management now expects Class I raw milk costs to inflate 19% from the year-ago period in the third quarter, which is considerably higher than the previous anticipation.

Net sales declined 5.5% to $ 1,843.5 million and missed the Zacks Consensus Estimate of $1,887 million. Volumes in the quarter were negatively impacted by customer exits and declines in the white milk category.

Adjusted gross profit declined 12.7% to $378 million due to lower volumes and higher dairy commodity inflation. Adjusted gross margin contracted almost 170 basis points to roughly 20.5%.

Further, adjusted operating loss was $27 million in the quarter against adjusted operating income of $35 million in the year-ago quarter.

Financial Position

Dean Foods ended the quarter with cash and cash equivalents of $20.9 million, long-term debt (including current portion) of approximately $984.9 million and shareholders’ equity of $195.8 million. Total debt outstanding (net of cash in hand) was nearly $968 million as of Jun 30, 2019.

In the first six months of 2019, the company used nearly $29 million of net cash for operating activities. Capital expenditures in the first half of the year amounted to nearly $45 million. The company used free cash flow of about $74 million in the same time frame.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -135.56% due to these changes.

VGM Scores

Currently, Dean Foods has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Dean Foods has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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