Wednesday, February 9, 2011

Dean Foods Co. (NYSE: DF): Q4 Earnings Preview 2010

Dean Foods Co. (NYSE: DF), the largest U.S. dairy company, is scheduled to release its fourth-quarter earnings before the opening bell on Wednesday, February 16, 2011. Analysts, on average, expect the company to report earnings of 14 cents per share on revenue of $3.20 billion. In the year ago quarter, the company reported earnings of 31 cents per share on revenue of $3.00 billion.

Dean Foods Company, together with its subsidiaries, operates as a food and beverage company in the United States. The Company operates through two segments: Fresh Dairy Direct and WhiteWave-Morningstar.

In the preceding third-quarter, the Dallas, Texas-based company's net income was $24.3 million, or 13 cents a share, compared with $49.7 million, or 28 cents a share. Revenue rose to $3.05 billion from $2.76 billion. Analysts, on average, had expected the company to earn 21 cents a share on revenue of $3.03 billion.

The U.S. Dairy products industry has been facing a number of hurdles lately. Increased feed costs have eaten into margins and an oversupply has damaged revenues.

DF has seen profit margins squeezed over the past few months as there has been a divergence in the relationship between the retail price of milk and input costs. Dean’s net income has declined year-on-year for the last four quarters. Earnings have been squeezed by retailers asking for price concessions and consumers switching to cheaper products.

At its last earnings call in November, the company said that it expects the competitive retail environment to continue to put pressure on its Fresh Dairy Direct-Morningstar business. The company stated that it expects fourth quarter earnings of 13 to 18 cents per share. In December, the company said it would take an $18.4 million charge in the fourth quarter to settle an antitrust suit, filed as a class action, for $30 million. Dean will also take a noncash income tax charge of about $10.8 million in the fourth quarter due to "errors," mainly prior to 2007.

However, the pessimism storrounding the stock has somewhat abated in past few day thanks to following developments: (1) A drop in class II butter fat pricing; (2) the sale of one of its yogurt divisions; (4) a successful $400 million debt placement; (5) Appalossa’s 7.35% reported stake managed by renowned hedge fund manager David Tepper; (6) a very strong overall stock market.

During the quarter in review, the company offered up to $400 million in notes, using the proceeds to repay a portion of its debt, easing the mounting pressure on its balance sheet.

Full Disclosure: None.
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