The retail industry is not undergoing a smooth phase, since consumer spending in the U.S. has been uncertain. The overall consumer spending in the U.S. dropped 0.2% in September, over the previous year. The retail giants are indeed having a tough time trying to attract customer interests. Moreover, customers' tastes and preferences too have changed.
Dean Foods (DF, Financial) is a retailer that sells dairy products in the U.S. This company, too, is witnessing difficult days. Nonetheless, it managed to live up to the Street's expectations in its third quarter results.
Insights into the quarter
Revenue for the quarter jumped 7% to $2.37 billion, over last year. This was higher than the analysts' estimate of $2.35 billion. Sales were driven by higher demand for Dean Foods' dairy products. This resulted in an increase of 70 basis points in the market share of the company, clocking in at 35.6%.
Third-quarter performance was much better as compared to the previous quarters. The previous quarters were affected by factors such as lower demand for dairy products. Also, people tend to prefer other breakfast options and have shifted from the traditional breakfast of cereals and milk. This has resulted in lower demand for cereals as well as milk. New items such as sandwiches, smoothies, yogurt, etc. have become more popular among customers. Therefore, volumes decreased 2% to 673 million gallons during the quarter. Another reason for lower volumes was loss of private label business in the previous year.
Moving down to the bottom line, Dean Foods registered a loss of $0.03 per share as compared to a profit of $0.12 per share in the prior year. But this was better than the analysts' estimate of $0.13 per share. The company did manage to recover from its previous quarters, which were suffering due to increase in raw milk prices, leading to a lower bottom line. However, the company undertook cost-cutting measures, which helped in improving the earnings.
Points to note
There are a number of efforts made by the company to recover from its current state. First, it remains focused on reducing its costs through measures such as reduction in headcount and closing of certain plants. Thus, the company expects to earn more in the future. It revised its fourth-quarter outlook upward to $0.05 per share and $0.15 per share. Another reason for the same is a decline in butterfat prices, which is one of the important ingredients of cottage cheese and ice cream.
It has also spun off its organic food business in order to concentrate on its core business. The organic food business is put under the name of White Wave Foods.
Because of ramped up production in the U.S. and New Zealand, and a resultant increase in supply, the company expects milk prices to fall next year. This should help boost its bottom line.
Summary
Therefore, investors should keep these points in mind. Decreasing butterfat prices, expected decline in milk prices and other cost cutting measures make Dean Foods’ future prospects look bright. Further, there is an increase in its market share. Hence, this dairy product provider looks like an interesting bet.
