CAG ConAgra Brands Inc

One of the leading processor and distributor of milk and other dairy products in the U.S., Dean Foods Company (DF), has finally reached an agreement with the dairy farmers in Southeastern States. The farmers in this region filed the suit against the company for allegedly keeping the milk prices artificially low. The case was scheduled to go on trial in August 2011.

Under the agreement, Dean Food will have to make a total payment of $140.0 million in five years to settle the lawsuit. The company will make an initial payment of $60.0 million during the approval date, which is agreed by the court, and then $20.0 million a year for the next four years on the anniversary of the final approval date.

Management at Dean Foods believes that the settlement is in the best interest of both the shareholders and the company, as this will allow Dean Foods to concentrate on key business challenges. The company also anticipates that the cash outflow for the settlement will have no material adverse impact on its financial results.

Prior to this, Dean Foods reported its adjusted earnings of 14 cents per share for the first quarter of 2011, which was well behind 23 cents recorded in the year-ago quarter, beating the Zacks Consensus Estimate of 6 cents.

Dean Foods' quarterly net sales inched up 2.9% year over year to $3,049.9 million, missing the Zacks Consensus Estimate of $3,058.0 million. The growth was primarily a pass-through of increased commodity costs at Fresh Dairy Direct-Morningstar to consumers in the form of higher prices and record top-line performance at WhiteWave-Alpro, partially offset by weedy volume 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.

 
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