Since pickles put Dean Foods
For the first quarter, its Specialty Foods division posted revenues of $157.2 million, a drop of 5% compared with the same period a year ago. Meanwhile, its Dairy Group posted sales of $2.2 billion, higher by 11.9%. Net sales for the entire enterprise were also up 11.9% to $2.7 billion. With solid overall revenue growth, it makes sense that Dean is looking forward to dumping the Specialty Foods unit altogether.
While Dean's sales were up, so too were its cost of sales and operating expenses. Gross margins for the company decreased to 24% from its 25% level a year ago. Likewise, operating profit margins were squeezed, down lower to 5.5% -- an 11.3% drop from last year. Part of the blame for the decline was attributed to higher raw milk costs as well as increased fuel expenses.
Despite the higher sales, Dean couldn't overcome the margin pressure. The result is that its net income decreased 4.4% to $66.2 million. However, since the company was able to decrease its outstanding shares by 7 million, its earnings per share (EPS) for the period remained unchanged at $0.43.
Flat EPS growth doesn't sound like good news, but apparently it was good enough for Dean to raise its guidance for the year. The company now expects to earn in a range of $2.28 to $2.33 per share, before the spinoff and stock options expensing.
Despite the apparent optimism from its upward revision, investors should be concerned about the pressure on its profit margins. Will the company be able to absorb the higher expenses by raising the cost of its goods? And will the company be able to maintain double-digit growth while raising the cost of goods? These are a couple of questions that investors will be looking to see whether Dean can answer in the coming quarters.
Dean may be getting out of one pickle, but there are a couple of other pickles that potential investors will want to look out for.
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Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.