Dean Foods (NYSE:DF) has been having a rough go of it lately, to say the least. The milk processor's stock has fallen 45% since the since the spring 2007 high. Perhaps the poor performance of the stock is part of the reason director Stephen Green exercised just under 19,500 options on Wednesday, June 4 and then sold just under 10,500 on the same day for $12 a share. It's one of those things that makes you go, "Hmm."

One has to wonder why one of the directors of the largest milk processor and producer in the United States is selling stock - especially if the share price was likely to turn around in the near future. Really though, you can't blame the guy. Most of us would exercise our options, too, given the tough operating conditions present in the dairy industry. Dairy, like virtually every other commodity on the planet, has seen dramatic cost increases over the past 18 months, something that's certainly crimping profits. (For the other side of the story, read Insider Selling Isn't Always A Bad Sign.)

Sour Milk
On April 30, Dean Foods report first quarter earnings of $30.7 million (21 cents per share) versus $63.8 million (47 cents per share) in the year earlier period. Unfortunately, the company is coming into payday. It holds just shy of $5 billion in debt and will have to pay up about $200 million of it in 2009. (To learn about debt ratios and how to use them to assess a company's financial health, read Debt Reckoning.)

Dean Foods is a great company overall, but when you stack up all of the financial-operating issues, the result likely causes investors to scratch their heads. Why buy a stock in a company with debt that supersedes shareholder equity by almost ten fold?

On a simple valuation basis though, Dean Foods doesn't look all that bad. The stock is trading with a forward PE of 12 and an amazingly low price to sales of 0.26. Of course, there's the cash issue, however, with the company presently only holding roughly 0.27 total cash per share.

Rivals Feel The Commodity Burn Too
Dean Foods' competitors ConAgra Foods (NYSE:GAG) and Kraft (NYSE:KFT) are in slightly better shape, but overall, higher costs are hurting the bottom lines of most food producers. Case in point, shares of Kraft are down almost 13% since summer of 2007. Heinz (NYSE:HNZ) on the other hand, is seemingly keeping things together very well, even with trouble some consumer based, cost and economic circumstances presenting a difficult business environment.

On the bright side, Dean Foods is certainly a global-warming-conscious company, as witnessed in the May 20 signing of The Climate Registry. The registry is a non-profit organization that measures and reports greenhouse gas emissions.

If reduced carbon emissions could generate a healthy balance sheet and income statement, Dean Foods would certainly be a front-runner in the dairy and food industry. For the time being though, the company will likely just have to buckle down and work hard to turn everything around.

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