Update: Dean Foods Earnings

| About: Dean Foods (DF)


The company beat 2Q consensus on the top line, but missed the bottom line by a wide margin.

We remain tepid on the long-term bullish thesis, noting there are better opportunities in the milk-related market.

We didn’t expect the huge miss for 2Q and note that cash flow generation is below our anticipated levels, as the company experiences the worst operating environment ever.

Dean Foods (NYSE:DF) posted 2Q earnings that were a $0.14/share loss (above the $0.06/share loss consensus), but revenues did marginally beat consensus, coming in at $2.39 billion. Shares are down 9% over the last month. Full-year 2014 EPS consensus has swung from $0.55 a month ago to a $0.22 loss today. This comes as management noted that the rest of the year will be rocky - guiding for 3Q EPS to a loss of between $0.05 and $0.15 loss, versus previous consensus of a $0.26 gain.

Since we first covered Dean Foods back in June of last year, shares are down 22%. The stock is also down 16% since our September follow-up. In September, we noted that the upside in the share price was capped. A large part of that was the success of WhiteWave (NYSE:WWAV). However, we did note that Dean Foods could become a shareholder-friendly play. It did indeed start paying a dividend, yielding a current 1.75%. But we might still be a couple years out before Dean Foods can consider any share repurchases.

Its cost reduction plans should go a long way toward boosting free cash flow and ultimately helping reduce debt - two key steps toward getting to share buybacks. During 1Q 2013, Dean Foods announced plans to reduce its manufacturing facilities by 10% to 15%, as of 2Q 2014, it had reduced facilities by 15%. A positive for reducing the volatility in earnings and boosting cash flow.

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