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No Appetite for Dean Foods

NEW YORK (TheStreet) -- It's been over a year since Dean Foods (DF - Get Report) announced it was selling its Morningstar Foods division to Saputo for $1.45 billion. Six months later, in May 2013, the company's board of directors agreed to spin off the company's stake in WhiteWave Foods Company (WWAV).

According to some analysts, these moves justified a higher multiple on the shares, which closed Friday at $15.08, down 12% for the year to date. It didn't take long for investors to soak up the excitement. These maneuvers positioned Dean Foods as a pure play in milk and other lower-end dairy products. The Street applauded, sending the stock soaring close to 60% in the six months that followed.

The consensus was that Dean's remaining businesses became clearer and easier to understand. Although this might have been true, management never fully outlined how the company's long-term strategy would reward investors. The way I saw it, the only real benefit management achieved was compiling the liquidity needed to service the company's massive debt and shoring up the balance sheet.

I don't want to say management's back was against the wall, but Morningstar Foods was a strong-performing asset that management would have rather kept. I'm just speculating here. These are my words -- not the company's. But the fact that Morningstar Foods specialized in extended-shelf-life products like sour cream and creamers made it hard to replace.

Besides, there aren't too many businesses, especially in the dairy industry, that are generating the cash flow and earnings before interest, taxes, depreciation, and amortization to the extent of Morningstar Farms.

Well, from there, the milk spoiled. Fast-forward one year later and Dean Foods shares are right back where they were at the beginning of 2013 -- falling 30% from its 52-week high.

The Street eventually realized that even though Dean Foods has made significant strides in its restructuring, including reducing its net debt to just $671 million in the November quarter (down from $4 billion), there are still questions about the company's operating structure. Adjusted earnings per share have been on a decline, while revenue has been flat. The 78% year-over-year decline in operating income did nothing to convince analysts that the margin situation will improve any time soon.

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