Thread by @petition

The Dean Foods chapter 11 bankruptcy filing is fascinating if you dive into it. $DF

It is a perfect storm of disruption.

Thread ⬇️

Milk consumption is in the midst of a serious secular decline.

“For the past 10 years, demand has fallen approximately 2% year-over-year in North America.”

This is largely attributable to the rise in alternative milks, a wave that $DF COMPLETELY MISSED.

“Sales of nut and plant beverages grew by 9% in 2018 and had sales of $1.6 billion, according to the Plant Based Foods Association.”

Retail consolidation compounded matters. As customers consolidated, they obtained increasing leverage against DF. For instance, DF sells a lot of milk to dollar stores. The merger of Dollar General with Family Dollar was credit negative. $DG

Customers' increased reliance upon vertical-integration and private label didn't help either. $WMT was 17% of revenue in '17 but only 15% of revenue in '18. The decline is because Walmart is producing its own milk now -- a loss of 100mm gallons to DF.

grocerydive.com/news/grocery--…

Worse, WMT and other retailers use milk as a loss leader to drive foot traffic. "...private label margin over milk contracted to a historic low of $1.26 in June, before falling even further to $1.24 in September.” The decrease in volumes affected DF's pricing power.

Milk production is highly capital intensive requiring money for a variety of inputs: raw milk, resin to make plastic bottles (which likely infuse all of us with dangerous chemicals, but whatevs), diesel fuel, and juice concentrates and sweeteners. How did it fund this? DEBT. Duh!

The supply chain is also highly involved. And inputs there have become more expensive. One example: trucking. Call this the "Amazon Effect." Freight costs have, in recent years, gone up considerably thanks to the rise of e-commerce.

Here is the company's capital structure. That's a nice amount of debt on balance sheet. We reckon those unsecured noteholders are about to take it on the chin a bit here. Given all of the secular issues, we can't imagine any sale price clearing the debt.