Dean Foods (DF) stock is down about 9% today on very high trading volume, after its 2013 forecast seems to have spooked investors:
The company’s outlook, however, fell short of analyst expectations, contributing to a sharp drop in its stock price early Wednesday. Dean Foods also said it recently lost of a portion of a significant customer’s business, “which will begin to be reflected in the second quarter of 2013.”
Dean Foods had seen its bottom line pressured by higher prices for raw milk, by far its biggest expense. While milk costs have begun to stabilize, the company continues to face increased competition from private-label brands as grocers offer low-cost milk to lure customers into their stores.
Dean Foods had a bumper January, gaining 11%. But including today’s fall the stock is down about 1.5% in the past three months, though up 53% in the past year.
The news prompted at least one Wall Street analyst to weigh in this morning.�Jonathan Feeney at Janney Capital Markets reiterated his Neutral rating, writing:
Free cash flow visibility remains mediocre, with FY12 FCF realization of ~73% (vs. ~123% in FY11) and sustained fluid milk volume declines, as evidenced by Dean�s FY13 milk volume guidance (-LSD%) that suggests market share loss, partially resulting from lost private label business that indicates worsening, not improving, industry overcapacity. While DF is responding by making significant plant closures (10-15%), it remains to be seen if the industry will follow suit or just gain that less profitable business.
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