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Morgan Stanley: Pressures On Dean Foods Could Weigh On Company Throughout 2019

Priya Nigam

Dean Foods Co (NYSE: DF) is evaluating strategic business alternatives that include asset sales, joint ventures, a merger and a sale of the company.

The company is still in the early stages of the process and could provide more details during its fourth-quarter results announcement. The fact that Dean Foods is exploring strategic alternatives indicates that it sees challenges ahead, according to Morgan Stanley.

Dean Foods reported fourth-quarter results Wednesday morning after Morgan Stanley's note was issued. The company's fourth-quarter earnings per share loss of 50 cents missed an estimated 26-cents-per-share loss, while sales of $1.93 billion beat a $1.91-billion estimate. 

The Analyst

Morgan Stanley’s Pamela Kaufman maintains an Equal-Weight rating on Dean Foods with an unchanged $6 price target.

The Thesis

Dean Foods has been experiencing significant challenges, with pressure from secular declines in milk volumes, aggressive private label milk pricing at retail, rising input costs and operating deleverage, Kaufman said in a note. 

The company also suffered due to delays in realizing cost savings from its recent plant closures, the analyst said. 

View more earnings on DF

All these factors have affected Dean Foods’ bottom line, resulting in a dividend cut, Kaufman said. These challenges are unlikely to abate in the near term and could continue weighing on the company’s performance in 2019, she said. 

Dean Foods’ announcement that strategic alternatives are being assessed signals that the company is concerned about its prospects, Kaufman said. The timing of the announcement suggests that results could continue to disappoint, she said. 

Price Action

Dean Foods shares were down 16.61 percent at $3.79 at the time of publication Wednesday. 

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Earnings Scheduled For February 27, 2019

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Latest Ratings for DF

Date Firm Action From To
Nov 2018 Credit Suisse Maintains Underperform Underperform
Nov 2018 Jefferies Downgrades Buy Hold
Aug 2018 JP Morgan Downgrades Neutral Underweight

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