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What: Shares of Dean Foods Co (NYSE:DF) were getting frozen out by investors today, falling as much as 10% after an underwhelming third-quarter earnings report.
So what: The food distributor said that adjusted earnings, which ignored the $415.8 million gain it made on the sale of its former WhiteWave subsidiary, came in at $0.12, a penny below estimates. Sales in the quarter of $2.2 billion, meanwhile, were essentially in line with estimates at $2.19 billion. Dean, which is primarily a dairy supplier, said that its share of fluid milk sales declined to 34.9% in the quarter from 36.4% a year ago, and industry volumes fell 1.7%. Dean also announced it would begin paying a $0.07 quarterly dividend, good enough for a 1.5% yield, bump up its share buyback authorization to $300 million, and made a tender offer to buy back $400 million of debt.
Now what: While those last announcements seem to confirm management's focus on returning value to shareholders, the company's outlook was not so hot. Dean now sees a full-year EPS of $0.85 to $0.91, well below analyst estimates of $0.98. At the high range of that projection, the company would have a P/E of 20, a lofty valuation for a business operating in the flat dairy processing industry, and analysts actually see sales falling 1.6% this year. Declining sales and a high price tag seem like more than enough reason to stay away.
Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of Dean Foods Co and WhiteWave Foods. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.