Soft Volumes Dim Dean Foods' (DF) Prospects In Q4 Earnings

Dean Foods Company (NYSE:DF) is slated to release fourth-quarter 2018 results on Feb 27. The company’s bottom line missed the Zacks Consensus Estimate in two of the trailing four quarters. In fact, this manufacturer of diary and other specialty food products reported a loss in the last reported quarter. Let’s take a look at the company’s prospects for the impending quarter.

Soft Volumes & Input Costs

Dean Foods has been grappling with lower volumes and loss of share in U.S. fluid milk volumes for a while. During the third quarter, volumes declined significantly year over year, primarily due to the closure of seven plants. Further, per USDA results, fluid milk category dropped 2% through August on a quarter-to-date basis. In fact, soft volumes and higher transitory costs dented adjusted gross profit and the bottom line. The impact of these volume losses may persist in the fourth quarter, which raises concerns.

Additionally, the company is witnessing input cost inflation that is weighing on profits. Evidently, higher resin, freight as well as fuel expenses are hurting the company’s margins. Also, a tight labor market stemming from limited driver availability affected margins. These factors along with higher transitory costs related to plant closures and increased advertising expenses have been denting results. Previously, management stated that it expects such high cost condition, especially in the case of fuel, to prevail in the fourth quarter of 2018. Other food companies such as Conagra Brands (NYSE:CAG) , General Mills (NYSE:GIS) and Lamb Weston (NYSE:LW) are also struggling with escalated costs.

Coming back to Dean Foods, although management is committed toward productivity initiatives and cost reductions, the company doesn’t expect these to be completely countered by the end of this year. Notably, constant rise in costs combined with plant closures and efforts to re-scale supply chain is likely to hurt performance in the fourth quarter. This is also reflected in the company’s outlook for 2018.

Dean Foods Company Price, Consensus and EPS Surprise

Estimates Unveils a Gloomy Picture

The Zacks Consensus Estimate is pegged at a loss of 27 cents per share for the impending quarter. This projection, which has been stable in the past 30 days, depicts a significant decline from earnings of 25 cents in the prior quarter.

Further, the consensus mark for revenues is pegged at $1,905 million, reflecting a drop of almost 1.6% from $1,935 million in the year-ago quarter.

What Our Model Says?

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

Dean Foods Earnings ESP of 0.00%, combined its Zacks Rank #5 (Strong Sell) makes us apprehensive about an earnings beat. Markedly, we caution against sell-rated stocks (Zacks Rank #4 or 5) going into earnings announcement.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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