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Why Shares of Dean Foods Co Plunged in March

By Travis Hoium - Apr 6, 2016 at 11:28AM

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Could Dean Foods Co's biggest customer become a big competitor? And could that be a good thing?

Image source: Dean Foods.

What: Shares of Dean Foods Co (DF) fell 10% in March, according to data provided by S&P Global Market Intelligence, after it got new competition from an unexpected source.

So what: In mid-March, Walmart (WMT 2.85%) announced that it would start getting into the milk processing business. The company will open its first milk processing plant this summer with the aim of lowering costs and shortening the distance between cow and store shelf. 

Walmart accounts for 16% of Dean Foods' sales, and the loss could be a blow to both the top and bottom line in the next year.

Now what: While lost sales could be bad for Dean Foods, the loss of Walmart won't likely result in much lost profit. Walmart is a notoriously difficult customer, and products like private label milk can be low margin to begin with. So, sales may fall in 2016 and beyond, but margins could be on the rise. Investors should watch how this plays out financially, but I wouldn't expect Walmart's turning into a competitor to be as bad as it seems at first glance.

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