Dean Foods (DF, Financial) recently announced mixed results for the third-quarter 2014. The dairy commodity environment hasn’t been favorable to Dean Foods so far this year. Nonstop increase in raw milk prices again hurt its results for the quarter. However, the company experienced sequential improvements in its operating results due to its continuous efforts of reducing costs and a rise in production and price realization efforts.
Despite these tough challenges, its top line increased 8% to $2.37 billion from $2.20 billion in the same quarter a year ago. The analysts were estimating revenue of $2.36 billion for the quarter. Also, it reported adjusted net loss of $0.03 per share, better than average analyst estimates net loss of $0.13 per share for the quarter.
Looking ahead, the dairy product giant has released positive outlook for the fourth-quarter. Dean Foods expects its earnings to range between $0.5 per share to $0.15 per share for the on-going quarter. Also, its full-year earnings are expected to be in the range of $0.6 per share to $0.16 per share. This should relieve some pressure off shareholders who look positive on the stock. Its share price has improved 5.4% aftermath.
Improving trends
Dean Foods should benefit from improving productivity going forward. The production is expected to improve in the United States, New Zealand and other milk-producing regions. Also, the favorable feed costs and quality with rise in the herd and yield per caw coupled with mild should accelerate its production in these regions. In fact, the production is expected to rise 3.5% in the second-half in the United States.
Moreover, this high farm gate prices and low feed costs particularly corn are generating strong margins for producers and driving supply. However, the demand doesn’t look quite favorable as the consumption demand is expected to remain modest in these export regions. Also, top 2 importers such as China and Russia have decreased their import purchase that could hurt its results in the future.
Raising price and controlling costs
Dean Food is taking various smart moves besides these market dynamics that should improve its performance this year and into 2015. The company expects the rise in the milk supply to strengthen its input costs. Dean has recently raised milk prices that should further help the company mitigating the higher input costs in the near future. Also, the company expect the raw milk price to come down in the future that should additionally improve its financial performance.
In addition, the company is enhancing its distribution capabilities. Dean Food has recently opened new warehouses and extended its shelf life capabilities. This has led its TruMoo reached a new all-time ACV or All commodity volume with secure distribution in 72% of United States shelves. This is certainly a great share in distribution in the United States. It should assist the company fetching better financial numbers once the market condition eases.
Furthermore, the company has recently launched 2 TruMoo protein plus SKUs across the region. It has already received authorization in 80% of its top key accounts. Further, it is planning to create market awareness aggressively for its new protein products that should enhance its performance going forward. This new protein-rich drink has started gaining a positive consumer response. In fact, the TruMoo protein is targeted to the young crowds that should fetch incremental customers to its fold in the future.
Apart from these strategic initiatives, Dean Food is also engaged in reducing overall costs. It plans to close down 10% to 15% of its plant networks by 2014. It has closed approximately 12 facilities since 2012. This will certainly assist the company driving its network optimization and efficiency at its operations across the region.
Conclusion
Dean Food looks like a good bet. The prevailing market conditions look pretty supportive that should enhance its productivity going forward. This indicates strong growth for the stock in the future. Also, its short term returns are pretty attractive. Its earnings are expected to grow at four digit growth rate by next year.
