The dairy industry has seen a lot of ups and downs in the last year. Factors such as weak economic conditions and increasing commodity prices have been weighing heavily on the industry players’ results. However, there is one player that has been crafting strategies to come out of the situation in a healthy manner. Dean Foods (DF), a food and beverage provider have some interesting weapons in its arsenal that might enable it to post great results. Although its first quarter results were mixed, it brought hope to investors.
Analyzing the Performance
Revenue for the period was down slightly, at $2.3 billion, mainly because of restructuring, spin offs and increase in milk prices. These measures, one of them being divestiture of Waukesha facility, have been taken in order to stay more focused on the core profitable business that is going through a difficult phase. Also, it has undertaken a number of initiatives to curb costs so that inflation can be fought easily without margins being affected. However, increasing prices of raw milk led to a loss of $0.05 per share.
Price plays a key role in customers’ buying habits. Hence, it is important to keep the price at optimum levels. Dean Foods has done that by passing on rising costs to customers at the right time. Also, it did not go for discounts in order to attain short term benefits against private players that offered slightly lower prices. The food retailer believes in containing its costs, through production efficiencies and cost cutting measures, rather than passing increases instantly to customers.
The Spin off – an Opportunity
Dean Foods spun off its WhiteWave operations last year and is now known as The WhiteWave Foods (WWAV), a consumer packaged food and beverage provider. However, it played a major role in driving total both top line and bottom line growth. All thanks to the marketing initiatives taken by the company and its focus on continuous product innovation.
WhiteWave’s performance was attributable to its plant-based food and beverage offerings which is gaining a lot of importance. Among the plant-based products, Silk has been the consumer favorite with Silk PureAlmond being the star.
Additionally, WhiteWave’s European business is also picking up pace with new products being the best driver of revenue. Healthier products such as almond drinks and yogurts lure customers as they become increasingly aware of the benefits of the products.
Yogurts and other organic products should be successful, as seen in the case of General Mills (GIS) that benefitted from its expansion into yogurts for its health conscious customers. Its successful addition of new flavors to the yogurts stirred consumer demand. This also helped in boosting earnings in its recent quarter. This makes WhiteWave’s prospects even brighter.
Although the dairy retailer’s quarter was not so good, its efforts look interesting. Also, it has a lot of potential given its strategy of focusing on its core operations. It has been divesting its other businesses so that it can remain concentrated on its fresh dairy direct business. With the sale of WhiteWave it plans to sell its Morningstar operations also.
Moreover, this was done in order to generate cash that will help in reducing Dean Foods’ debt. This makes the company quite attractive. Also, it has been taking measures to cut costs, which should show up on its bottom line.
Might be a great investment opportunity
Dean Foods is the largest dairy player in the United States and has almost 40% of the market share. It is also making significant efforts to market its products in order to lure more customers without lowering its prices. The company also expects commodity prices to ease in the future that will be beneficial going forward. With a continuous drive for offering new products, Dean Foods looks like a decent bet. Investors should keep an eye on this company.