It is no secret that Dean Foods
Gross margin compression has been very common for consumer products companies this earnings season, especially in companies such as Tyson
Don't bet the farm on it, or even a couple of the milking cows. Dean CEO Gregg Engles made a point of dampening investor expectations well into the future. The company's press release contained this ray of sunshine, "It's clear that our results this year will largely be driven by the commodity markets, which remain highly unsettled and inflationary." Translation: Things look bad, and could get much, much worse, but there's nothing we can do. Sorry!
Engles then dropped this gem of management-speak, "Longer term, we expect our transformational efforts to increasingly drive our results." I think he is vaguely referencing the company's efforts to make its branded operations such as White Wave and Morningstar Farms, which are now a single division, into a more predictable and meaningful profit-driver for the company over the next few years. But he left just enough wiggle room to make the statement essentially meaningless, while still hinting at hope on the horizon. Vaguery from management in tough times always makes me nervous.
The industry may also be facing an undersupply of organic milk in the coming months, not good news for Dean's thriving Horizon brand. This could be eased by a softening in demand as consumers decide to swallow a little bovine growth hormone and antibiotics instead of a $6 price tag for a gallon of organic milk, but either situation is not particularly good news for Dean shareholders. Dean also suffers from being largely dependent on the American consumer, and the risk-reward ratio at this point is not particularly attractive.