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Dean Foods Co.’s (DF) adjusted earnings per share for the third quarter of fiscal 2010 came in at 13 cents, well behind 33 cents recorded in the year-ago quarter and the Zacks Consensus Estimate of 21 cents per share.

On a reported basis, including one-time items, third-quarter 2010 earnings plummeted 51.1% to $24.3 million from $49.7 million in the year-ago period.

Meanwhile, Dean Foods’ quarterly net sales grew 11.0% year over year to $3.1 billion, in line with the Zacks Consensus Estimate. The growth was primarily a pass-through of higher commodity costs at Fresh Dairy Direct-Morningstar to consumers in the form of higher prices. In terms of segments, sales from Fresh Dairy Direct–Morningstar grew 11% year over year to $2.6 billion, while WhiteWave–Alpro division sales increased 8% to $478.3 million.

Quarterly gross profit declined 4.6% year over year to $749.6 million, while gross margin contracted 390 basis points (bps) to 24.5%. The margin reduction was primarily caused by insufficient pass-through of higher commodity costs.

Dean Foods’ operating expenses rose 1.4% to $657.1 million from $648.0 million in the year-ago period. Accordingly, operating income during the quarter slipped 35.0% year over year to $103.1 million.

Dean Foods ended the quarter with cash and cash equivalents of $102.1 million with a long-term debt-to-capitalization ratio of 72.8%, compared with a cash balance of $38.6 million and a long-term debt-to-capitalization ratio of 76.7% in the year-ago quarter. Year to date, the company generated $388.1 million of cash from operations and utilized $180.6 million toward capital expenditure and $156.9 million in debt repayment.

Dean Foods offered disappointing guidance for the fourth quarter of 2010 as the company expects the competitive retail environment to continue to put pressure on its Fresh Dairy Direct-Morningstar business. The company stated that it expects earnings of 13 to 18 cents per share during the fourth quarter, well below the current Zacks Consensus Estimate of 27 cents.

Dean Foods’ shares maintain a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation on the stock remains Neutral.

Source: Dean Foods Misses on Higher Costs