If the food produced by this company is half as bad as the performance of the stock, then consumers are in trouble and should seek medical attention. The stock has fallen to a new 52-week low in the $8 range from a high close to $19 per share. The recent quarter was a stinker and caused the stock to plunge over 16%. Things don’t look to improve much going forward either. Nauseated shareholders probably recognize that I am talking about Dean Foods (DF).
Curdled Quarter
Third-quarter earnings were terrible as net income plunged 51% to 13 cents per share. Analysts were looking for 21 cents. Sales did rise, but not enough to counteract the poor earnings. So what was the main culprit in the quarter. It was soaring butterfat and other dairy commodity costs that did the company in. According to the company, butterfat prices zoomed 70% over last year. In even worse news, the man who has been credited with cost cutting efforts, CFO Jack Callahan, is leaving for another company at the end of November.
CEO Gregg Engles used the “c†word regarding its Fresh Dairy Direct-Morningstar business. That would be “challenging†in terms of the business environment. That is a euphemism for things are going terribly and we don’t know when they will turn around.
As if the drop the day after the report wasn’t enough, the stock dove almost 10% more the next day. Analysts poured salt into the wounds of shareholders. Credit Suisse analyst Robert Moskow said there is too much production and also falling demand which will hit profit margins hard. He cut his price target from $11 to $7, which is close to where the shares are trading right now. I think it’s best to avoid this stock now and put your money where companies are delivering strong results.
It’s tough to slap a price target on a stock where there is so much going wrong. Thus far, analyst estimates have held steady for this year at $1.00 per share, but I expect those numbers will come down. That being said, the stock is not expensive at about 7x earnings, but it is unlikely that investors will have any confidence in the company for at least a few more quarters.
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