Dean Foods notes drop after poor earnings report; Frontier issues trend higher on earnings beat

By James McCandless

San Antonio, Feb. 27 – The distressed market was hit with a deluge of earnings reports on Wednesday, driving the day’s activity.

Dean Foods Co.’s notes dropped after the company reported a disappointing earnings report, punctuated by lackluster sales and a strategic alternatives review.

Elsewhere, Frontier Communications Corp.’s issues were trending higher after the company beat expectations in its Q4 earnings report.

Sector peer Windstream Holdings, Inc.’s paper was lower as the company gained access to debtor-in-possession financing.

Utility PG&E Corp.’s notes were pushed lower, under pressure from more negative news.

Meanwhile, in oil and gas, Denbury Resources Inc.’s issues climbed after exceeding fourth quarter expectations.

Alta Mesa Resources, Inc.’s paper saw a slight recovery after yesterday’s crash.

Also in energy McDermott International, Inc. and California Resources Corp. each saw their paper rise after releasing earnings reports this week.

Community Health Systems, Inc.’s notes were also on the rise as the company prepares to bring new notes to market.

Dean Foods down

Dean Foods’ notes entered a decline on Wednesday, traders said.

The 6½% notes due 2023 dropped 4¾ points to close at 74¾ bid.

Early Wednesday, the Dallas-based dairy product manufacturer issued its fourth-quarter earnings report, showing lackluster results.

The company reported a 50 cents per share loss, missing analyst predictions of a 26 cents per share loss, citing a reduction in sales.

It also suspended its dividend.

On Tuesday, Dean announced that it would conduct a strategic alternatives review amid the weak sales and increasing pressure from its competition.

“Word is they’re looking to sell,” a trader said. “But there’s not a lot of companies chomping at the bit for this. It doesn’t really fit in easily anywhere.”

Frontier higher

Meanwhile, in telecom, Frontier’s issues saw a positive trend, market sources said.

The 7 5/8% notes due 2024 picked up 1 point to close at 57½ bid. The 10½% notes due 2022 added ½ point to close at 72½ bid. The 11% notes due 2025, while moving as high as 66½ bid, closed the day level at 65 bid, according to Trace data.

The Norwalk, Conn.-based wireline telecom name reported fourth-quarter earnings after the close on Tuesday.

The company showed a loss of 6 cents per share, narrowly missing analyst estimates of a 4 cents per share loss.

The market focused its attention on the company’s better-than-expected $2.12 billion in revenues, which it pinned on higher customer revenue and lower operating costs.

“They also said that they’d be making an interest payment that’s due soon,” a trader said. “So that’s surprising. There’s a lot of ways that this year could play out for them, but I’d consider a quarter like this to be the exception and not the norm.”

Windstream lower

Elsewhere in the sector, Windstream’s paper fell, traders said.

The 9% paper due 2025 dipped 1¼ points to close at 56¾ bid. The 7¾% paper due 2021 shed 1½ points to close at 21 bid.

“These are all over the place,” a trader said. “The structure is pretty big. So there hasn’t been much uniform movement.”

Late Tuesday, after the Little Rock, Ark.-based rural communications name filed for Chapter 11 bankruptcy, a court approved the company’s access to $1 billion in debtor-in-possession financing.

After the close on Wednesday, Fitch downgraded subsidiary Windstream Services, LLC’s issuer default rating and several issue-level ratings.

The bankruptcy filing came in the aftermath of a court ruling that the company defaulted on its bonds after spinning off a segment in 2015.

PG&E negative

PG&E’s notes were down on the back of negative headlines, market sources said.

The 6.05% notes due 2034, a bellwether for the structure, fell 1¾ points to close at 91¾ bid.

News broke early Wednesday that the San Francisco-based bankrupt electric utility reported that it delayed a safety overhaul on a high-voltage transmission line that is one of the suspected causes of the late 2018 Camp fire that spread in California.

Plans for the overhaul started in 2013 and were expected to be complete by the end of 2018, one month before the wildfire started.

Denbury climbs

In the energy space, Denbury’s issues fared better, traders said.

The 6 3/8% notes due 2021 picked up 1¾ points to close at 85¾ bid. The 5½% notes due 2022 shot up 3¾ points to close at 78¼ bid.

The Houston-based independent oil and gas producer also reported fourth-quarter earnings on Wednesday, showing surprisingly positive results.

It reported a profit of 10 cents per share, slightly higher than the predicted 9 cents per share profit.

“Considering the way oil name have been going lately, this was not expected,” a trader said.

Alta Mesa up

Sector peer Alta Mesa’s paper bounced back from Tuesday’s crash, market sources said.

The 7 7/8% paper due 2024 moved up 3 points to close at 33 bid.

On Tuesday, the 7 7/8% paper crashed 16¾ points.

Alta Mesa reported that day that it found "ineffective internal control over financial reporting” that was being investigated by a law firm and that it anticipates $3.1 billion in non-cash impairment charges.

Oil rises

Amid the backdrop of positive oil futures and recent earnings reports, popular oil tranches were gaining, traders said.

Houston-based oil and gas engineering name McDermott’s notes were moving upward.

The 10 5/8% notes due 2024 added 1½ points to close at 84½ bid.

Despite reporting a $1.55 per share loss on Monday, the company’s notes bounced back after it announced that it had been awarded construction contracts with Saudi Aramco and Kennedy Space Center.

Los Angeles-based producer California Resources’ issues were also positive.

The 7 1/8% notes due 2020 rose 2¼ points to close at 92 bid. The 8% notes due 2022 gained 1¾ points to close at 80¾ bid.

After the close on Wednesday, the company released its Q4 earnings report.

It reported a 53 cents per share profit, far surpassing analyst estimates of a 2 cents per share profit.

West Texas Intermediate crude oil futures for April delivery jumped up $1.44 to end the session at $56.94 per barrel.

North Sea Brent crude futures for April delivery saw a similar trajectory, finishing at $66.39 per barrel on a $1.18 gain.

Community Health better

In healthcare, Community Health’s paper followed the positive trend, market sources said.

The 7 1/8% paper due 2020 rose 2 points to close at 92 bid. The 6 7/8% paper due 2022 added 5¼ points to close at 65½ bid.

The rise came as the Franklin, Tenn.-based hospital operator prepares plans to price $1.58 billion of seven-year senior secured notes on Thursday, Prospect News reported.

Last week, the company reported a 42 cents per share loss, beating analyst expectations of a 58 cents per share loss.

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