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No Appetite for Dean Foods

Management, however, remains optimistic. To its credit, it has been upfront and honest about the company's situation. Nor has management pretended the company's recent results were better than they were. Gregg Tanner, the company's CEO, talked about "enhancing the company's strengths and capabilities." I only wish I knew what these strengths were and how these capabilities will be extended.

But after working so hard over the past 18 months shedding off assets and cutting off some fat, I'm more interested in seeing progress with margins. At this point, I can't say I agree with management's decision to begin "aggressively reducing costs." This strategy is counter-intuitive to the company's goal of building any sort of competitive advantage. Saving your way towards growth doesn't work -- not when you're already playing from behind.

Not to beat up on management or anything but relative to, say, Kraft (KRFT), Dean Foods has only had limited success in branding its business to produce strong returns. So, while the stock does appear more attractive than where it was six months ago, the operational risks are still too high. Not to mention, milk demand is still falling faster than supply.

On Tuesday the company will report fourth-quarter and full-year results. The Street will be looking for 19 cents in earnings per share on revenue of $2.28 billion, which would represent a year-over-year revenue decline of 33%. This is while earnings per share is seen as falling 76%. These numbers are unattractive, to say the least. But the Street is taking into account that the business is in the midst of an extensive changeover.

In these situations, what investors want to see are small steps, or signs of sequential improvement -- particularly with margins and free cash flow. But more than anything, what management says about the company's progress should determine how the Street reacts.

For now, I would advise staying away from the stock despite the company becoming more shareholder-friendly by adopting a new dividend policy. This was another decision with which I disagreed given the company's liquidity situation.

All told, I just don't see any quick fixes with this operation, which just might remain in a perpetual restructuring mode, at least for the next couple of years.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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