Citing record dairy prices and an extreme commodity environment, Dean Foods reduced its 2007 net income guidance to $1.25 per share, a notable reduction from a previously estimated range of $1.52 to $1.58 and below analysts' consensus view of $1.46 per share. Third-quarter earnings are expected to hit 15 cents per share, 11 cents south of Wall Street's per-share earnings estimate.
What's more, Dean plans to trim its workforce by 2% or 3%, effectively eliminating 600 to 700 jobs. A restructuring charge will likely impact third-quarter earnings.
In prepared remarks, the food company's Chairman/CEO, Gregg Engles, noted: This is by far the most difficult operating environment in the history of the company ... 2007 results have been well short of our expectations. Dean's dairy-group division is the largest processor and distributor of milk and other dairy products, and increased grain and dairy costs have had negative repercussions on the unit.
In pre-market trading, the shares have slipped nearly 10%, dropping below the 24 level. Even a modest pullback will bring the stock back below its 10-day and 20-day moving averages, above which DF crested yesterday for the first time since late July. The shares have been declining slowly since April, guided south by their overhead 10-week moving average. Despite this, 5 of the 13 analysts following the stock name it a strong buy, leaving Dean vulnerable to future downgrades.