J.P Morgan Gives Color On Dean Foods Following Management Meetings

J.P Morgan recently visited the management team of Dean Foods DF, the Dallas-based dairy company. Its takeaway was that Dean now faces a long, arduous path to generate the kind of savings that could eventually offset the roughly $100 million, or $0.55, in permanently lost margin from last year. Its debt load likely precludes any near-term movement that could create value, such as a sale or spin-off of the White Wave-Alpro unit. Shrinking industry volumes are also an increasing concern.

The slack volume performance—the category was down 2.6% for the 12 weeks ended Feb. 19, according to the Nielsen Company data—prolongs the excess capacity issue within the category as well as compromising some of the efficiency measures Dean has achieved thus far. On a more positive note, Dean recently won a new contract to
supply Food Lion in the Carolinas, which is favorable.

JPM remains cautious on DF shares. Dean's $0.55 to $0.65 guidance range includes declining dairy costs in the second half as well as continuing volume declines on the 1-2% order; both assumptions could prove optimistic.

JPM has an $11 PT on DF and Neutral rating

DF closed Thursday at $9.78