Shares of Dean Foods Inc. fell on Wednesday after the dairy and dairy supplier reported weaker-than-expected fourth quarter results, announced that it was suspending its dividend and preparing for strategic options, including a possible sale of the company.
The stock has been reduced by 12% to reach its lowest level in 2019 so far. By mid-day, 3.9 million shares had changed hands, about three times their average daily volume.
The Dallas-based company has faced pressures that hurt other food companies, such as Campbell Soup Co.
CPB + 10.03%
and Kraft Heinz Co.
as retailers and their rivals encroach on their space and consumer tastes change.
AMZN, + 0.29%
sells milk online under the Happy Belly brand, while Walmart supermarket chains Inc.
and Kroger Co.
KR, + 3.04%
offer branded dairy products. The demand for milk has been declining for years and producers are now facing competition from herbal products, such as soybean and wheat milk.
Wednesday, Dean Foods recorded a larger than expected $ 260.1 million, or $ 2.85 per share loss, in the fourth quarter, after earnings of $ 52.3 million, or 57 cents per share, at the same time of the previous fiscal year.
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Excluding non-recurring items, such as non-cash depreciation expense, the adjusted loss per share amounts to 50 cents, exceeding FactSet's consensus for a loss of 26 cents. Sales remained virtually unchanged at $ 1.93 billion, compared to a consensus of $ 1.91 billion for FactSet.
L & # 39; Company
, which includes Land O Lakes, Country Fresh and Dean's brands, has announced the suspension of its quarterly dividend as part of a plan to improve its balance sheet. The quarterly dividend was 3 cents per share, which implied a return of 2.64% at the closing price on Tuesday.
"Our financial results for 2018 reflect the volume of deleveraging of some customers leaving our company, as well as a significant inflation of fuel, freight and resin costs," said General Manager Ralph Scozzafava, in a statement. communicated. "While we have made significant progress in implementing our cost-productivity plan across the enterprise, cost savings have been mitigated by the incremental transitional costs associated with a recent full consolidation of the company's costs. installation".
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Scozzafava said its goal was still to strengthen its private label business.
"To win in the private label sector, we have to be the low cost supplier and also transform the way we market the market," he told analysts, according to a FactSet transcript.
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Jefferies said the number of adjusted EPS was 22 cents below its estimate. But analyst Akshay Jagdale noted that the company still produces positive free cash flow, even in very difficult operating conditions. This "combination with the possibility of reducing costs should be of strategic interest, particularly at these levels". Jefferies awards the title a € 6 deduction, about 50% more than its current level.
Stifel analysts said that the strategic review was not a surprise, given the well-documented challenges that the company faces. However, the company remains the largest processor and distributor of fresh milk in the United States, with a 36% market share, they said.
"We believe that dairy product categories and the national refrigerated supply chain are adding value to major grocery retailers, with retailers increasingly considering dairy products, particularly private label products, as a strategic category." to generate in-store traffic, "wrote analysts. "Dairy product categories are particularly advantageous compared to online retailers of pure online gaming, given the need for refrigeration and the frequency of purchases. That said, we do not believe that there is a single strategic buyer for the company as it is constituted today. "
Stifel assigns a hold to the stock and sets a target price of $ 5.
Bernstein analysts said it was unclear whether Dean Foods could attract premium offers given the state of its fundamentals.
"Currently, comparing the carrying amount of all assets and offsetting the value of all liabilities gives a book value of $ 3.44 per share," they wrote in a note. "If we exclude goodwill and intangible assets that are currently in the balance sheet, we get a value of only [about] $ 1.25 per share. "
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This may, however, underestimate the fair value of the goodwill of the company. They noted that when the company acquired the business of Friend's Ice Cream in 2016 for $ 155 million, the company's annual revenue was just under $ 166 million. Today, total ice cream sales total more than $ 1 billion, although much of it is unbranded.
"On the other hand, Dean Foods' existing manufacturing facilities and distribution network may not account for 100% of their book value in the event of an incendiary sale," said Bernstein. "By balancing these put options, the valuation of Dean Foods in a liquidation scenario is likely lower than its current book value of $ 3.44 per share."
Dean Foods shares have fallen 54% in the last 12 months, while the S & P 500
and Dow Jones Industrial Average
each gained about 2%.
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