Dean's Earnings, A Turnaround Yet? (DF)

Dean Foods Company (NYSE: DF) is finding that no good deed goes unpunished.  The dairy seller reported that adjusted earnings were $0.15 EPS versus the Thomson Reuters target of $0.14 EPS. On a diluted basis after items its quarterly earnings came to a loss at -$0.11 EPS.  Revenues were in-line with estimates at $3.2 billion.  Where the issue lies is with guidance and an ongoing difficult operating environment.

For Fiscal-2011, earnings were put between $0.55 to $0.65 EPS, which is flat to slightly lower than 2010.  Estimates from Thomson Reuters are $0.79 EPS but analysts will need to evaluate the impact of a sale when considering these adjustments.

The company does not see meaningfully better industry conditions in 2011 but it does see more stability returning to important aspects of the business.  The stability is at levels that will translate to lower earnings in Fresh Dairy Direct-Morningstar.  The company also will have a higher interest expense after amended and extended credit pacts.  It has also already entered into a pact to sell two yogurt operations which generated approximately $20 million in annual operating profit that is now gone.  The disposition would have resulted in an annual earnings of $0.64 EPS versus $0.80 reported including the units.  Dean also noted that the fluid milk category finished the year with volumes down 2.5% in the fourth quarter and it has started 2011 soft.

Net cash provided by continuing operations for the twelve months ended December 31, 2010 totaled $526 million, compared to $658 million in 2009. Free cash flow provided by operations, which is defined as net cash provided by continuing operations less capital expenditures, totaled $224 million for the twelve months ended December 31, 2010, compared to $390 million in 2009.

Dean Foods has been pounded already.  Shares closed at $9.79 on Tuesday with a market cap of just under $1.8 billion and against a 52-week range of $7.13 to $17.00.  So far shares are indicated down 6.6% at $9.14 in the pre-market on more than 250,000 shares with almost an hour until the open.

We have some food for thought here, no pun intended.  The analysts may need to further bring their estimates in-line with the drop-off from the sale of the yogurt operations before the guidance is called a total bust.  Things are tough and input costs are not getting cheaper for dairy and food producers at the same that producers have a hard time passing price hikes on to the consumer level.  This is no turnaround yet, but finding anyone who expected a sudden and swift turnaround has been difficult.  Milk is cow puss today, but it may be health food again in a year.

JON C. OGG