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Dean Foods Gains 15% in 3 Months: Can the Upside Continue?
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Dean Foods Company has seen its stock revive of late, with its shares up 14.5% in the past three months, outperforming the industry’s 12% growth. This Zacks Rank #3 (Hold) company, which was otherwise down 11.8% in the past six months and 42.1% in the past year, seems to be recovering on the back of its better-than-expected first-quarter 2018 results.
Let’s delve deeper and see if Dean Foods’ growth drivers can help sustain this momentum amid volume-related hurdles.
Diversifying Portfolio: A Key Driver
Dean Foods has been taking strategic steps to optimize capital allocation and concentrate on core business activities. In this regard, the company is looking to diversify its portfolio of brands, moving beyond the pure milk products. The company is on track with the growth of its core dairy-related business, including products like ice cream, flavored milk and sour cream. At the same time, it is also vouching for opportunities in foodservice and other beverages. Moreover, we applaud the company’s efforts to grow in the organic space, which is evident from its deals with Good Karma and Organic Valley Fresh milk brand as well as the acquisition of Uncle Matt's Organic juices.
Focus on Cost Reduction & Productivity
Dean Foods remains committed toward boosting operational excellence via execution of the enterprise-wide cost productivity program, aimed at generating additional savings in 2018 and beyond. This productivity program mainly revolves around three major areas, namely enhancement of supply-chain network, optimization of spending across all key categories to ensure greater efficiency and integration of operating model along with minimization of general and administrative expenses. Notably, Dean Foods has completed the initial phase of reducing general and administrative expenses and is on track to start the next phase that focuses on rightsizing network to match volumes.
Further, the company continues to make efforts to achieve the lowest cost position in the industry. Under the OpEx 2020 cost productivity plan introduced in 2017, the company had targeted annual productivity of $80-$100 million. In 2018, the company expects to save more than this targeted range. Driven by these efforts, the total landed cost had decreased by more than $4 million year over year in the first quarter, even amid stronger-than-anticipated freight inflation.
Q1 Gets a Boost: Will it Sustain?
These factors drove Dean Foods in first-quarter 2018, wherein its top and bottom lines beat the Zacks Consensus Estimate. With this, the company bucked its trend of in-line earnings or a miss in the seven preceding quarters. Also, sales beat estimates after three straight quarters of miss. Notably, raw milk costs were down 16% year over year and nearly 13% on a sequential basis. Well, shares of Dean Foods have gained 21% since the solid outcome.
However, adjusted gross profit declined 4% year over year, mainly due to soft volume and greater mix of private label products. Further, adjusted operating income decreased 11.1% in the first quarter. For the second quarter, management anticipates reduction in volumes from two large customers. Nevertheless, management is aggressively working on enhancing its product volumes through smart volume initiative and cost-productivity plan, though it might take time.
Also, it remains optimistic about its savings initiatives, which are likely to offset input inflation and volume deleverage throughout its operational phase. These endeavors along with Dean Foods’ constant product innovations and strategic partnerships should place the company well for the long run.
The Chefs' Warehouse, Inc. (CHEF - Free Report) , with long-term earnings per share growth rate of 22%, carries a Zacks Rank #2 (Buy).
B&G Foods (BGS - Free Report) , with a Zacks Rank #2, has seen positive estimate revisions in the past 30 days.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
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Dean Foods Gains 15% in 3 Months: Can the Upside Continue?
Dean Foods Company has seen its stock revive of late, with its shares up 14.5% in the past three months, outperforming the industry’s 12% growth. This Zacks Rank #3 (Hold) company, which was otherwise down 11.8% in the past six months and 42.1% in the past year, seems to be recovering on the back of its better-than-expected first-quarter 2018 results.
Let’s delve deeper and see if Dean Foods’ growth drivers can help sustain this momentum amid volume-related hurdles.
Diversifying Portfolio: A Key Driver
Dean Foods has been taking strategic steps to optimize capital allocation and concentrate on core business activities. In this regard, the company is looking to diversify its portfolio of brands, moving beyond the pure milk products. The company is on track with the growth of its core dairy-related business, including products like ice cream, flavored milk and sour cream. At the same time, it is also vouching for opportunities in foodservice and other beverages. Moreover, we applaud the company’s efforts to grow in the organic space, which is evident from its deals with Good Karma and Organic Valley Fresh milk brand as well as the acquisition of Uncle Matt's Organic juices.
Focus on Cost Reduction & Productivity
Dean Foods remains committed toward boosting operational excellence via execution of the enterprise-wide cost productivity program, aimed at generating additional savings in 2018 and beyond. This productivity program mainly revolves around three major areas, namely enhancement of supply-chain network, optimization of spending across all key categories to ensure greater efficiency and integration of operating model along with minimization of general and administrative expenses. Notably, Dean Foods has completed the initial phase of reducing general and administrative expenses and is on track to start the next phase that focuses on rightsizing network to match volumes.
Further, the company continues to make efforts to achieve the lowest cost position in the industry. Under the OpEx 2020 cost productivity plan introduced in 2017, the company had targeted annual productivity of $80-$100 million. In 2018, the company expects to save more than this targeted range. Driven by these efforts, the total landed cost had decreased by more than $4 million year over year in the first quarter, even amid stronger-than-anticipated freight inflation.
Q1 Gets a Boost: Will it Sustain?
These factors drove Dean Foods in first-quarter 2018, wherein its top and bottom lines beat the Zacks Consensus Estimate. With this, the company bucked its trend of in-line earnings or a miss in the seven preceding quarters. Also, sales beat estimates after three straight quarters of miss. Notably, raw milk costs were down 16% year over year and nearly 13% on a sequential basis. Well, shares of Dean Foods have gained 21% since the solid outcome.
However, adjusted gross profit declined 4% year over year, mainly due to soft volume and greater mix of private label products. Further, adjusted operating income decreased 11.1% in the first quarter. For the second quarter, management anticipates reduction in volumes from two large customers. Nevertheless, management is aggressively working on enhancing its product volumes through smart volume initiative and cost-productivity plan, though it might take time.
Also, it remains optimistic about its savings initiatives, which are likely to offset input inflation and volume deleverage throughout its operational phase. These endeavors along with Dean Foods’ constant product innovations and strategic partnerships should place the company well for the long run.
Don’t Miss These Consumer Staples Stocks
MEDIFAST INC (MED - Free Report) , a Zacks Rank #1 (Strong Buy), has delivered positive earnings surprises in the past three quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Chefs' Warehouse, Inc. (CHEF - Free Report) , with long-term earnings per share growth rate of 22%, carries a Zacks Rank #2 (Buy).
B&G Foods (BGS - Free Report) , with a Zacks Rank #2, has seen positive estimate revisions in the past 30 days.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>