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Dean Foods Co. (NYSE:DF) is scheduled to release its first-quarter 2011 results on Tuesday, May 10, 2011. The Zacks Consensus Estimate is 6 cents a share for the first quarter of fiscal 2011. This represents a year-over-year estimated decline of 73.9%.

Fourth Quarter Performance

Dean Foods’ adjusted earnings per share for the fourth quarter fiscal 2010 came in at 15 cents, well behind 31 cents recorded in the year-ago quarter but beat the Zacks Consensus Estimate by a penny.

The company’s quarterly net sales grew 5.5% year over year to $3,153.0 million, missing the Zacks Consensus Estimate of $3,176.0 million. The growth was primarily a pass-through of higher commodity costs at Fresh Dairy Direct-Morningstar to consumers in the form of higher prices and record top and bottom line performance at WhiteWave-Alpro that were partially offset by volume softness at Fresh Dairy Direct-Morningstar.

Earnings Guidance

The company expects dairy commodity prices to rise due to global demand and poor weather in Australia and New Zealand in the first half of fiscal 2011.

Moreover, the company is in the midst of a massive cost reduction effort, which it expects would deliver $125.0 million in productivity in fiscal 2011. Dean Foods is expecting full year 2011 adjusted earnings to be in the range of 55 cents to 65 cents.

Agreement of Analysts

Over the last 30 days, none of the analysts moved their estimates in either direction for the first quarter of fiscal 2011 thereby leaving the consensus unchanged. This implies that most of the analysts are neutral on the outlook and do not foresee any upward catalyst or downward pressure on the result. For fiscal 2011, 1 analyst out of 15 has decreased the estimate with no upward movement by any analyst over the last 30 days.

In the last 7 days, no movement has been made in estimates by any analyst for the first quarter of fiscal 2011 and fiscal 2011.

Magnitude of Estimate Revisions

With no revision in estimates by any analyst in the last 7 and 30 days for the first quarter of fiscal 2011, the estimate has remained static at 6 cents a share. Over the last 30 days, the estimate for fiscal 2011 has gone down by 1 cent to 57 cents a share to account for a stray downward revision by one analyst. Over the last 7 days, there has been no movement in estimates for fiscal 2011.

Earnings Surprise

Considering earnings surprises, the stock has not been steady over the last four quarters, with a mix of positive and negative surprises ranging between a low of -38.1% and a high of 20.0%. The average remained negative at 7.2%.

The upside potential for the estimate in the first quarter 2011, essentially a proxy for future earnings surprises, currently stands at 0.0%.

Our Recommendation

Dean Foods is a leading processor and distributor of milk and other dairy products in the U.S. as well as a leading manufacturer of various specialty food products. The company continues to make headway in its efforts to achieve the lowest cost position in the industry. Management’s plans to reduce headcount by 350 to 400 positions has led to approximately $25 million in annualized cost savings in 2010. The company also intends to move aggressively toward streamlining its cost structure and target total cost savings of $125 million in 2011 and $300 million over a period of three-to-five years

The acquisition of Alpro is expected to drive sales growth of the WhiteWave–Alprosegment. Alpro is the European leader in branded soy-based beverage and food products with strong brands like Alpro soya and Provamel. Demand for soy and organic foods has increased rapidly due to growing awareness among consumers about the health benefits of the same. The acquisition of Alpro has provided Dean Foods a significant opportunity to expand into new markets across the European Union.

On the other hand, Dean Foods’ recent decision to divest its milk processing and related businesses situated in Waukesha, Wisconsin will certainly hurt its top line as the company has more than 60% of market share in the region. The divestment decision is a part of antitrust dispute settlement agreement between the company and the U.S. Department of Justice (DOJ) and the states of Wisconsin, Illinois and Michigan.

Dean Foods, which competes with Kraft Foods Inc. (KFT), currently has a Zacks #3 Rank, implying a short-term Hold rating on the stock. Besides, we retain a long-term Neutral recommendation on the stock.

Source: Dean Foods: Earnings Preview