Dean Foods Co (NYSE:DF) sees some risk if it continues to narrow its focus to milk products. The company’s CEO, Ralph Scozzafava, recently said they have to diversify into other product categories outside Dean’s staple.
The pressure on Dean to diversify its product line has increased as milk consumption in the US continues to decline as consumers shift to alternatives. To unlock new growth and mitigate the impact of shrinking milk market in the US, Dean sees potential in beverages such as juices and teas.
Utilizing existing infrastructure
In the diversification push, the company is looking at products it can produce at its existing factories or transport in its existing fleet of refrigerated trucks. For a successful shot at diversification, the company is hoping to develop new products internally and combine in-house efforts with acquisition of strategic companies.
While Dean is seeking to go beyond its traditional milk business, the company will continue to drive growth from its line of milk products such as flavored milk, sour cream and ice cream.
Diversification with an eye on earnings
Scozzafava said diversification efforts at Dean will not only focus on growing volume and acquiring market share, but the primary focus will be on improving earnings and cash flow.
Despite revenue for the December quarter (4Q16) falling 0.2% to $2.02 billion, the company generated a profit of $32.8 million, rising sharply from $18.5 million a year earlier. On an adjusted basis, the company posted EPS of $0.38, up from $0.36 in the prior year.
Analysts on the average were expecting adjusted EPS of $0.41 on revenue of $2.02 billion.
However, in what signals trying moments for American milk companies, Dean provided a downbeat outlook for 2017. The company is expected fiscal 2017 adjusted EPS in the band of $1.35 – $1.55, yet the consensus estimate calls for adjusted earnings of at least $1.57.
Dean’s shares retreated more than 8% to $18.8 in the last session following its anemic outlook for 2017. The stock is down more than 13% this year.