Dean Foods (DF, Financial) recently announced an 8% increase in third quarter net sales to $2.4 billion, surpassing analysts' estimate of $2.35 billion, according to the FactSet consensus estimate. In addition, Dean Foods also reported an adjusted diluted loss from continuing operations of $0.03 per share as compared to the third quarter 2013 adjusted earnings of $0.12 per share. The company expects fourth quarter adjusted diluted earnings in the $0.05 to $0.15 per share range, whereas analysts were projecting a loss of 2 cents. Hence, it is clear that Dean Foods is on the path of improvement in its performance.
Gaining traction
Dean Foods reported 2% year-over-year decline in total volumes during the third quarter at nearly 73 million gallons partially owing to the loss of private label business with considerably lower customers and reduction in its Class II products.
Dean Foods robust portfolio of brands is estimated to be a competitive advantage and converges with its unique set of customers and utilizes its distribution capacities and national coverage for the network. In the third quarter, its brands captured first or second positions in nearly 80% of its markets being served.
Considering the flavored milk segment, Dean Foods flavored milk volumes remained constant over last year. The food major extended its national TruMoo brand into unique categories like protein and ice cream and plans to develop TruMoo into a $1 billion brand. In the opportune store channel, TruMoo witnessed an 11% expansion compared to last year in a poorly enhancing flavored milk channel and shares rose more than 2%. For MULO, the shares of TruMoo were constant with volume performance converging with the flavored milk segment, enhancing 1% sequentially.
Dean Foods targets on expanding its national distribution by improving its DSD capability with enhanced shelf life capacity and new warehouse. Further, Dean Foods is investing aggressively into the brand improving the leadership capabilities. Consequently, TruMoo is continuously witnessing share expansion in convenience channels, drug and food and achieved record ACV with continued secure distribution executed in 72% of the U.S. markets.
Making smart moves
Dean Foods recently introduced 2 TruMoo protein plus SKUs nationwide and already has authorization in 80% of its major accounts. It targets on building brand awareness for each of its innovative protein products at all the leadership levels. It continues to focus on young adult males with TruMoo Protein Plus product adding a fresh customer to the TruMoo franchise.
By the quarter end, Dean Foods has currently closed 12 facilities post accelerating its activities in the second half of 2012. Going forward, Dean Foods estimates to arrive at the remarkable levels of network optimization.
In 2014, there’s continued robust expansion of milk production in export areas. In the beginning of 2014, total milk production for 7 major exporters enhanced 5.1% over last year. Moreover, the growth in their milk production is estimated to become flat during the second half of 2014 and remain nearly 4.1% for the complete year, representing the greatest growth in supply since a decade.
Looking at the supply vertical, production increased extraordinarily in export regions developing huge supply and enhancing the product availability in the markets worldwide. For the demand vertical, total consumption growth for the export areas is flat. For instance, Russia and China, which comprise 20% of worldwide imports and remained the world's top first and second importers in 2013 respectively, have considerably lowered their import purchases.
Overall, US dairy exports expanded about 4% in September for this year even after reduction of 11% in August and lowering of 16% in September.
Conclusion
Dean Foods is making good moves to improve its performance. As a result, investors should consider investing in this stock for the long run.
