A Promising Pick for the Future
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
“Customer Is the King” – this is the best philosophy to be followed for a business to run well. A company which thinks of its customers first will always be a winner. This was well affirmed by the grocer Kroger (NYSE: KR), which has been following it for quite some time now. The company gained more than 11% on its bottom line in its first quarter by following the simple philosophy of keeping customers happy. Its loyalty discounts attracted customers galore, leading to a 5.8% surge in revenue.
Dean Foods Company (NYSE: DF), food and beverage provider, also treaded a similar path and the results of this philosophy were amazing, enabling its share price to jump north. Its second quarter results posted last week not only beat Mr. Market’s expectations, but also reflected the strength of its business.
What Makes it so Attractive?
Due to its efficient cost saving initiatives, earnings grew almost 100% over the last year to 36 cents per share. Moreover, it witnessed lower dairy costs which were passed on to the customers by way of lower product prices. Though this affected its top line to some extent, the bottom line took away all the investors’ attention.
Some Things to Look Forward To…
Dean’s best performing portion business was WhiteWave, a subsidiary which sells premium dairy products such as soymilk and organic milk, with its revenue surging 11% to $573 million. In fact, this segment has been the company’s favorite for quite some time now. Hence, it has decided to cash in on it by issuing an IPO, selling 20% of Dean’s stake in the company.
This looks like a good effort on the company’s part since it can use the proceeds to reduce its debt levels. This will be done without losing on its ownership, which would still stand at 80% post IPO. But what is more important to notice is the fact that Dean intends to remain focused on its core business of Fresh Dairy sales, which comprises almost 70% of its universe. Its core division registered a 37% growth in its operating income this quarter and it is expected that it will help the Dallas-based company drive greater profits in future.
Additionally, the food giant will be able to focus properly on its WhiteWave business by keeping it separate from its dairy segment. Another possible advantage would be that WhiteWave might become increasingly attractive to beverage giants such as PepsiCo (NYSE: PEP) and Coca-Cola (NYSE: KO) which have been trying to look for expansion opportunities. Each of them has been trying to launch new, healthy and attractive products so that they can attract new customers. This concern comes in since customers have become increasingly health conscious, avoiding colas and switching to juices, soymilk and other healthier options.
Conclusive Thoughts
Dean Foods looks to be on the right track. A company that can manage its costs efficiently and keep customers happy will never have to look back. What’s more, it has an upgraded guidance to look forward to. Moreover, its WhiteWave spin-off could be a huge opportunity for investors. With product innovation on the cards volumes are also expected to push up further. Overall, this company will definitely be interesting to watch in the months to come.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Dean Foods Company, The Coca-Cola Company, and PepsiCo. Motley Fool newsletter services recommend PepsiCo and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
