DF – Trading A Leg Down On Earnings Outlook

DF reported Q2 2013 results today with a $0.01 miss on EPS and revenue below expectations ($2.23B vs $2.25B). The company cited a challenging environment in which milk volumes appear softer than previously estimated, and flagged that Q3 volumes should be the most challenged in the year. This gives us pause on buying the stock on today’s pullback that broke its trade line of $10.98. Our quantitative levels suggest buying closer to our intermediate term TREND price level of support at $9.81.

 

DF – Trading A Leg Down On Earnings Outlook - zz. df

 

DF milk volumes were down -6% in Q2 year-over-year (vs industry milk down -2.1%) and the company’s U.S. market share dropped to 36.4% in the quarter versus 37.8% in Q1.  The company expects mid single digit declines in milk in 2013, and on the call narrowed its FY adjusted diluted EPS guidance to $0.47 to $0.53 versus a prior $0.47 to $0.55.

 

Despite the negative print, and subdued outlook for Q3, DF, having spun off 67% of Whitewave (WWAV) in May 2013 and reaped $589MM through the sale of its remaining stake of WWAV in July, has bolstered its financial position and is in a strong cash position should it want to make an acquisition in 2H; certainly deployment of this cash could awaken animal spirits on the long side.

 

The company trades at a P/E of 14.4x versus a peer average of 17.2X and EV/EBITDA of 10.6x versus 11.6x. Despite the discount to the group, we are not buyers here and now on today’s pull back. 

 

Matthew Hedrick

Senior Analyst


Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more