Dean Foods Hunts for Buyers - Analyst Blog
April 19 2011 - 5:30AM
Zacks
One of the leading processor and
distributor of milk and other dairy products in the U.S.,
Dean Foods Company (DF), recently declared its
intention to divest its milk processing and related businesses
situated in Waukesha, Wisconsin. Dean Foods' 170,000 square-foot
milk processing facility and equipment, brands and other related
assets will be included in the divestiture.
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 to sell Dean Foods' plant and related
businesses located in Waukesha. Apart from this, Dean Foods will be
required to inform DOJ prior to making any future milk processing
plants of more than $3.0 million.
In April 2009, Dean Foods bought
Foremost's consumer products division and two processing plants in
Waukesha and DePere, Wisconsin, which made the company a major milk
buyer in the region. Farmers have complained that less competition
in the region has helped the company to hold down prices paid to
the farmers. DOJ and States attorneys filed a lawsuit against the
company on this matter in January 2010.
Prior to this, Dean Foods reported
its adjusted earnings of 15 cents per share for the fourth quarter
of 2010, which was well behind 31 cents recorded in the year-ago
quarter, beating the Zacks Consensus Estimate by a penny.
Dean Foods' 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,
partially offset by volume softness at Fresh Dairy
Direct-Morningstar.
Based in Dallas, Texas, 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 operates primarily on a local
basis, competing mostly with local and regional operators. Dean's
largest customer Wal-Mart Stores Inc. (WMT) and
its subsidiaries accounted for approximately 19% of consolidated
net sales in 2010.
However, in the recent years, the
retail grocery industry has experienced significant consolidation,
and as a result, competition has intensified among dairy product
suppliers. Dean Foods experiences stiff competition, especially at
the processor level in all major product lines and geographic
markets. Moreover, the company is anticipated to suffer
significantly from the loss of any large regional grocery chain.
Dean Foods competes not only with various dairy processors for
shelf space, but also with various beverages and nutritional
products. The company's major competitors include Kraft
Foods Inc. (KFT) and ConAgra Foods Inc.
(CAG).
Dean Foods currently has a Zacks #3
Rank, implying a short-term 'Hold' rating on the stock. Besides,
the company retains a long-term 'Neutral' recommendation on the
stock.
CONAGRA FOODS (CAG): Free Stock Analysis Report
DEAN FOODS CO (DF): Free Stock Analysis Report
KRAFT FOODS INC (KFT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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