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The news just continues to be "decidedly less than stellar," (to put it diplomatically), regarding Dean Foods Co.'s (NYSE: DF) business execution.
Dean Foods cut its full-year EPS estimate to about $1.25 versus the Reuters consensus estimate of $1.47 -- citing a consumer pull-back prompted by rising dairy prices at the retail level.
If was the second time this year that Dean Foods had cut full-year earnings estimates. In a statement, CFO Jack Callahan said the company expects an oversupply of organic milk to continue to affect results for the balance of this year and into at least the first half of 2008. In addition, overall sales have softened as consumers adjusted their consumption habits to cope with record-high food prices, Callahan said.
Further, Dean Foods also announced that it plans to cut 600-700 jobs, and take a restructuring charge in Q3 in connection with the cuts, but it did not furnish a charge figure. Dean Foods said it would first immediately seek voluntary job cuts, with an involuntary reduction to follow, if needed.
Analysts generally interpreted Dean Foods' lowered guidance as another disappointing data point for food processing companies. According to analyst Jonathan Feeny of Wachovia Securities, Dean is experiencing a unfavorable headwind as consumers shift from branded to private labels in some big markets. Dean Foods sells dairy goods under more than 50 local and regional brands. DF's shares traded 10 cents lower to $26.19 in late Tuesday afternoon trading.
Fly Analysis: To-date, Dean Foods has not adjusted well to the era of higher commodity and ingredient costs, and compensation pressures, hence DF is a high-risk stock not suitable to moderate-risk and low-risk investors. Further, until Dean Foods can demonstrate higher sales for key brands, investors should keep to the sidelines regarding DF.
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