In Post 8 I discussed why I was bullish on milk volumes and that I was particularly looking for a turnaround in fluid milk sales. Dean Foods is the largest company in the space, and I now am long. Here is some more on the financial aspects of it.
DF has suffered majorly from the decline in milk volumes. For awhile it was overridden by their WhiteWave brands, but they were spun off three years ago. The remaining company simply had to cut costs hard, and management must be given credit for doing this. Operating expenses have fallen by over a quarter. Of course milk costs have gone down as well, but so have selling prices. Even so there is reason to be optimistic on margins. Dean has an active branding program which is showing some signs of success. The boutique milk types like flavored and lactose-free will also help here. Most important, Dean has a lot of operating leverage to volume improvement. Here's a simple spreadsheet that illustrates DF's upside to a turnaround in fluid milk consumption. I have assumed that volume grows by 1% per year and margins increase by two percentage points as the branding and specialty milk initiatives pay off. I also assume that temporary cash items like changes in receivables will be zero. They were strongly positive in 2015, which is why 2016 FCF will be down.