What To Expect From Dean Foods (DF) This Earnings Season?

Dean Foods Company (NYSE:DF) is scheduled to release fourth-quarter 2017 results on Feb 26.

Last quarter, the company reported earnings in line with the Zacks Consensus Estimate. Moreover, Dean Foods has missed the Zacks Consensus Estimate in three of the trailing four quarters, with an average negative surprise of 15.2%.

Let’s see how things are shaping up prior to this announcement.

What to Expect?

The question lingering in investors’ minds now is whether Dean Foods will be able to deliver a positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the quarter under review is pegged at 26 cents per share, reflecting a 31.6% decline year over year. In fact, the Zacks Consensus Estimate for the quarter has been stable ahead of the earnings release. Analysts polled by Zacks expect revenues of $1.95 billion, down 3.4% from the year-ago quarter.

Furthermore, the stock has declined 14.6% in the past month, wider than the broader Consumer Staples sector’s loss of 6.6%.

Factors at Play

Dean Foods’ top line has been plagued by challenges related to soft volumes, higher raw milk costs and loss of share in U.S. fluid milk volumes. Moreover, the company’s business is heavily dependent on commodities such as raw milk, soybeans, diesel fuel and others, the prices of which often fluctuate. Hence, any rise in the price of these commodities is likely to hurt margins.

In third-quarter 2017, raw milk costs were up about 10% year over year and nearly 7% on a sequential basis, which impacted sales. Meanwhile, the milk category remained soft as the fluid milk volumes dipped 2.2% year over year, on a quarter-to-date basis. Additionally, Dean Foods' share of U.S. fluid milk volumes contracted 50 basis points. These adverse fluctuations in raw material prices pose threats to Dean Foods’ operating results.

However, Dean Foods looks well-poised with its smart volume initiative, which aims at improving top line, building margins and creating operating efficiencies. In third-quarter 2017, the company’s results gained from overall solid sales execution and stringent progress on its smart volumes initiative, which helped in wining some new business for 2018. This is likely to produce roughly 40 million gallons on an annualized basis for numerous key customers. The company anticipates starting shipping this volume by end of this year and into early 2018. Going forward, the company expects to bring more smart volumes into its system to aid top-line growth.

Additionally, Dean Foods’ initiatives to strengthen brands and diversify portfolio bode well. While the company is seeing core dairy-related business growth from products like ice cream, flavored milk and sour cream, it is also optimistic about opportunities in juices, teas and other beverages.

Going into 2018, the company expects to build brand equity on DairyPure through new product innovation and improved marketing. Moreover, the company’s efforts to grow in the organic space, including recent deals with Good Karma and Organic Valley as well as the acquisition of Uncle Matt's juices, should strengthen its portfolio. In the meantime, Dean Foods’ remains focused on improving profitability through cost reduction initiatives.

Despite top-line constraints, the company’s endeavors look promising to boost its performance in the near term.

What the Zacks Model Unveils?

Our proven model does not show that Dean Foods is likely to beat estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Dean Foods has an Earnings ESP of -3.85%. Although the company’s Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Hormel Foods Corporation (NYSE:HRL) has an Earnings ESP of +10.94% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Inter Parfums Inc. (NASDAQ:IPAR) has an Earnings ESP of +0.88% and a Zacks Rank of 3.

Pinnacle Foods Inc. (NYSE:PF) has an Earnings ESP of +1.98% and a Zacks Rank #3.

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