It's not the most exciting business on the planet, but when dairy giant Dean Foods (NYSE:DF) reports earnings Wednesday morning, analysts are expecting some pretty upbeat results. According to the consensus forecasts summarized on Yahoo! Finance, the Street expects Dean to produce nearly $2.6 billion in sales for the third quarter of 2005 and to translate that into profits of $0.51 per diluted share.
Although that sales forecast actually calls for a 7% decline from the year-ago quarter, profits would equal nearly an 11% improvement over Q3 2004 if Dean achieves it. As illogical as that might seem, it sounds like something that Dean management would likely agree with. Three months ago, in reporting its second-quarter earnings, the company cited the strength of those results, combined with "continuing strong business trends," in raising its earnings guidance for the balance of this year. Dean predicted back in August that it would earn between $0.49 and $0.51 per diluted share for Q3.
I can't speak to the exact amount that Dean will report, but the trends do appear to favor the company's chances of achieving strong results. For one thing, Dean has been paying down its debt this year, with long-term debt whittled down to $2.9 billion as of June 30. That should have decreased the amount of interest expense that the company paid in Q3. In addition, the company updated investors on the progress of its share-buyback plan in early August, when it reported having bought back $106.6 million worth of stock -- which should equate to nearly 3 million shares, or nearly 2% of shares outstanding as of June 30. At that time, Dean also advised that it had more than $300 million left to spend on share buybacks, so, in theory at least, the company could have reduced its share count by as much as 8% in Q3. The combination of share buybacks and reduced interest payments could help Dean hit near the high end of its earnings target.
Add in reports of lower cheese costs coming out of Domino's (NYSE:DPZ) last week, and it seems likely that lower raw-milk costs may also be at work, thereby reducing Dean's cost of doing business. Put it all together, and I wouldn't be surprised to see Dean not just hit but exceed its earnings estimate tomorrow -- and the fact that it's done just that in three out of the past four quarters only strengthens my hunch.
Why is it that whenever the Fool writes about this dairy concern, the talk quickly turns to pickles? Find out in:
- TreeHouse Foods Sprouts
- Pickles, Cream, and a TreeHouse
- Is Dean Out of a Pickle?
- Dean Wrestles With Pickles
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Fool contributor Rich Smith does not own shares of either company named above.
