Year-to-date, shares of Dean Foods (NYSE:DF) have lost over 77%. It’s not a good sign. And now the company is making headlines as it lost a further 36.5% in Tuesday’s trade when it reported a quarterly loss. DF has attributed the loss to retailers who are discounting milk to get customers through the door. Is there any sign of life for DF stock?
Dean Foods and DF Stock
The top US milk processor now has a market cap just north of $100 million. Shares currently trade low at $1.10 USD. From where it once stood in 2016 as a kingpin of the milk industry, it has fallen very hard. To paint the picture, back then, DF stock sold for $21.52 at its all-time peak.
In the company’s latest earnings call, Dean Foods Chief Financial Officer, Jody Macedonio, said that the overall dairy category is down 2% annually over recent years and in Q2 that trend worsened.
“The dairy category continues to be pressured by very low retail price points on private-label milk while at the same time, accelerated dairy commodity inflation is putting additional pressure on margins.”
The company held no punches when placing the blame on retailers. Macedonio furthered:
“As retailers continue to invest in private-label milk to drive foot traffic, private-label margin over milk is contracted to $1.26 in June matching a historic low […] As retailers continue to fund pricing promotions to drive traffic into their stores, they’re draining their own profitability. As a result, we believe these margins are unsustainable and expect it to alleviate over time.”
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Another factor impeding on DF’s success is the increase in consumption for plant-based milk such as oat, almond, and soya milk. These variants have grown 6% in recent years.
The results showed a net loss of $0.70 a share. Not exactly thrilling for investors, especially considering that loss widened to $64.5 million from $40.1 million in the same period a year ago.
Where to Now for Dean Foods?
With milk prices falling and consumers opting for milk alternatives, DF will likely have to look long and hard at its business plan if it wants to resurge.
In the short term, Macedonio said the following would happen:
“We are actively implementing our enterprise-wide cost productivity program to address the deleverage from the volume decline and higher dairy commodity inflation. We expect our initiatives to accelerate during the second half of this year as we continue to reset our cost base and drive supply chain productivity to be more agile and cost-efficient.”
And further, the company recently added an important addition to its management team. Dean Foods announced a new CEO, Eric Beringause, who took up his new role only one week ago. With vast industry experience, Beringause may be a knight in shining armor who will know how to turn this company around.
What do you think? Is there a chance DF stock will resurge? Is Dean Foods going to survive?
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