The Mess at Dean Foods

Last March, I highlighted Dean Foods (DF) as a potential value play. To be fair, I didn’t say to run out and buy it at $15. I said: “Dean is in rough shape right now, but if things start to turnaround by the middle of 2011, the stock could rally quite handsomely.”

A few weeks later, Dean plunged after it badly missed its own forecasts. They had said to expect 25 cents to 30 cents per share, but they earned 23 cents per share. Never trust a stock that does that. The stock fell below $10.

The stock is getting hammered again today:

The company, which reported lower-than-expected quarterly profit after it cut prices to compete with private-label brands, saw its share price drop as low as $8.50, its lowest since 2001, when Suiza Foods bought Dean and took that name.

Chief Executive Gregg Engles called Dean’s results “disappointing” and warned that price concessions will affect results well into 2011.

“It is clear that a significant segment of customers… are cutting back on purchases of even basic items,” Engles said on a call with Wall Street analysts.

He said retail prices for private-label milk were still far below historic levels. Dean Foods, based in Dallas, said butterfat prices rose 70 percent compared to a year earlier.

Dean Foods would speed up its efforts to cut costs to deal with the rising prices, Engles said.

Separately, Dean’s chief financial officer Jack Callahan is leaving for another company as of Nov. 30 and will be replaced by Chief Accounting Officer Shaun Mara.

Callahan has been credited with running the company’s efforts to cut costs and his imminent departure raised some concerns on Wall Street.

“It makes us wonder if the cost savings goals will be lowered,” Janney Capital Markets analyst Jonathan Feeney wrote in a note.

Posted by on November 9th, 2010 at 3:54 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.