This week in dairy news, we get "all the moos that's fit to print" from Dean Foods (NYSE:DF). The company is due to report its Q4 and full-year 2005 earnings numbers tomorrow, before the opening bell.

Wall Street Wisdom:

  • General consensus. Of the 14 analysts following the dairy king, one rates the stock a sell, while six say hold, and seven vote buy.
  • Revenues. Dean's reported sales are expected to shrink by more than 5% tomorrow, primarily because the Dean of today is not as big as the Dean of last year. The company spun off its TreeHouse Foods (NYSE:THS) unit in June, then sold its Marie's dressings and Dean's dips to Ventura Foods later last year.
  • Earnings. Profits likewise contracted in the quarter; analysts project a 16% decline in the year-over-year net to $0.54 per share, which is near the high end of the company's own guidance of three months ago.

Margin watch:
Dean's gross margins ebbed and flowed over the course of the past 18 months. At last report, they wound up right back where they started, averaging about 24.3%.

Margins %

6/04

9/04

12/04

3/05

6/05

9/05

Gross

24.3

23.8

23.7

23.5

24.1

24.3

Op.

7.4

6.9

6.3

6.1

6.4

6.4

Net

3.7

2.7

2.6

2.5

2.6

3.2
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish forensics:
Sadly, the same can't be said about margins further down the income statement. Revenues haven't been growing strongly at all, but the company's selling, general, and administrative expenses increased by about 7% over the past two quarters. This situation has pressured the company's operating margins and, by extension, its net -- and that's all before you factor in the restructuring costs from selling off its non-core operations. With those expenses in the mix, you can see why Dean's net margin has been on the wane.

Last quarter, the company identified higher fuel, energy, and packaging costs as the primary culprits for its rising operating costs. Dean advised that it intends to begin passing these costs on to consumers in the form of price increases, but it doesn't expect these efforts to begin translating into material results on its income statement before fiscal 2006.

Fool contributorRich Smithdoes not own shares of any company named above.