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Shares of Dean Foods (DF) opened down 10% after the milk producer released fourth-quarter sales and earnings. While some have lost a taste for DF, could today’s dip be a healthy buying opportunity? Find out now.
With operations in Dallas, Texas, Dean Foods is a diversified food company which specializes in dairy products. The company maintains plants and distributors across the U.S. and the U.K. and is responsible for big brands like Horizon Organic dairy, International Delight coffee creamers, Land O’ Lakes butter, Lehigh Valley milk and PET ice cream.
Sales and Earnings Buzz
Dean Foods announced that it swung to a $37 million loss in in the second quarter, compared with a $8 million profit in the prior year quarter. Excluding discontinued operations Dean Foods posted adjusted earnings were 18 cents per share.
However, this missed the 19 cents EPS consensus estimate by over 5%. According to management, higher dairy prices along with reduced food-stamp benefits weighed on top- and bottom-line results. Revenue also fell 7% to $2.3 billion, topping analyst estimates of $2.27 billion in sales.
What sparked the selloff in Dean Foods stock was the company’s lackluster guidance for FY 2014, which I’ll go over momentarily.
A member of the Dairy Products industry, Dean Foods has only five other publicly-traded competitors. Of these companies, Dean Foods is largest in terms of market capitalization, highest in terms of return on equity, and highest in terms of profit margins.
However, this outperformance probably won’t last long. Looking ahead to this year, Dean Foods forecasts a 69% to 74% year-on-year drop in earnings while the industry as a whole is expected to see 37.9% bottom-line growth. Dean Foods’ largest privately-traded rivals are Dairy Farmers of America Inc. as well as Dreyer’s Grand Ice Cream Holdings Inc.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. 2013 was not a good year for Dean Foods–following quarter after quarter of disappointing earnings, institutional buying pressure steadily fell. So Dean Foods stock went from a B-rated buy as recently as July to a D-rated sell in October, where the stock has remained ever since. DF currently receives an F for its Quantitative Grade.
On the fundamentals side, Dean Foods is doing well in terms of operating margin growth, earnings momentum, cash flow and return on equity (all A-rated). However, it outright fails on earnings surprises (F), earnings revisions (F) and sales growth (D). DF receives a B for its Fundamental Grade.
Bottom Line: As of this posting I consider Deans Foods stock a D-rated Sell.
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!