Why Shares of Dean Foods Co Plunged in March

Image source: Dean Foods.

What: Shares of Dean Foods Co fell 10% in March, according to data provided by S&P Global Market Intelligence, after it got new competition from an unexpected source.

So what: In mid-March, Walmart announced that it would start getting into the milk processing business. The company will open its first milk processing plant this summer with the aim of lowering costs and shortening the distance between cow and store shelf.

Walmart accounts for 16% of Dean Foods' sales, and the loss could be a blow to both the top and bottom line in the next year.

Now what: While lost sales could be bad for Dean Foods, the loss of Walmart won't likely result in much lost profit. Walmart is a notoriously difficult customer, and products like private label milk can be low margin to begin with. So, sales may fall in 2016 and beyond, but margins could be on the rise. Investors should watch how this plays out financially, but I wouldn't expect Walmart's turning into a competitor to be as bad as it seems at first glance.

The article Why Shares of Dean Foods Co Plunged in March originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.