Dean Foods Company Reports Third Quarter Results

DALLAS, Nov. 9, 2010 /PRNewswire-FirstCall/ -- Dean Foods Company (NYSE: DF) today announced third quarter diluted earnings per share of $0.13 for the quarter ended September 30, 2010, compared to diluted earnings of $0.27 per share in the third quarter of 2009. Adjusted (as defined below) diluted earnings per share in the third quarter were $0.13, compared to $0.33 per share in the year ago period.

“These results are clearly disappointing for us and reflect continued significant challenges in our largest business, Fresh Dairy Direct-Morningstar,” said Gregg Engles, Chairman and Chief Executive Officer. “Despite our poor consolidated performance, WhiteWave-Alpro continued to perform exceptionally well and delivered significant top and bottom line growth. However, given the relative size of the business, it was not enough to offset substantially weaker results in our Fresh Dairy Direct-Morningstar segment.  In addition to ongoing adverse conditions in the conventional milk business,  weak consumer spending led to soft volumes in conventional fluid milk and other beverage and cultured products within our Fresh Dairy Direct-Morningstar business.  Our results were also impacted by much higher than anticipated butterfat costs. In response to a weak trading environment and our on-going poor performance, we continue to take aggressive steps to improve our results, including accelerated cost reductions and the recent realignment of our management and organizational structure.”  

Net income attributable to Dean Foods for the third quarter of 2010 totaled $24.3 million, compared with $49.7 million in the prior year’s third quarter. Lower operating income at Fresh Dairy Direct-Morningstar and increased interest expense offset improved WhiteWave-Alpro results. Adjusted net income for the quarter was $23.3 million, a decrease of 62% from $61.2 million in the third quarter of 2009.

DEAN FOODS CONSOLIDATED

Net sales for the third quarter totaled $3.1 billion, an increase of 11% from net sales of $2.8 billion in the third quarter of 2009. The net sales increase in the quarter was primarily due to the pass-through of higher dairy commodity costs at Fresh Dairy Direct-Morningstar somewhat offset by strong sales growth at WhiteWave–Alpro.  

Consolidated operating income in the third quarter totaled $92.5 million, compared to $137.5 million in the third quarter of 2009. Continued pressures in the market for conventional fluid milk driven by retailer pricing pressure, weak volumes, and rapid butterfat inflation drove a 33% decline in Fresh Dairy Direct-Morningstar operating income. This decline was partially offset by a 10% increase in WhiteWave-Alpro operating income resulting from continued strong top-line growth. As a result, third quarter consolidated adjusted operating income was $103.1 million, a decrease of 35% from $158.4 million in the third quarter of 2009.

FRESH DAIRY DIRECT-MORNINGSTAR

Fresh Dairy Direct-Morningstar fluid milk volume was essentially flat in the third quarter, including acquisitions, versus the balance of the industry that experienced volume decline of roughly two and a half a percent, based on Company estimates. Across the balance of the Fresh Dairy Direct-Morningstar portfolio, the ice cream, cultured products and creamer product lines experienced modest volume declines in the quarter, while strong demand from quick service restaurants drove a solid increase in ice cream mix and aerosol product sales volumes. Total volumes for all products at Fresh Dairy Direct-Morningstar declined two percent in the quarter.  Fresh Dairy Direct-Morningstar net sales increased due to the pass-through of higher average dairy commodity costs to its customers. As a result, segment net sales increased 11% to $2.6 billion from $2.3 billion in the third quarter of 2009. The third quarter average Class I Mover was $15.64 per hundredweight, 11% above the previous quarter and 50% higher than the third quarter of 2009. Class II butterfat, a key component of the Company’s creamer, cultured and ice cream products, increased 26% from the previous quarter and was 70% higher than in the third quarter of 2009.

Consistent with previous quarters, retail pricing for private label milk remained well below historical levels and fluid milk industry pricing remains highly competitive. Widened price gaps between branded and private label offerings drove continued consumer trade-down to lower-margin private label products. This, combined with overall volume weakness and rapid butterfat inflation drove Fresh Dairy Direct-Morningstar operating income in the third quarter of $116.5 million, a 33% decline from $174.9 million in the third quarter of 2009.

WHITEWAVE-ALPRO

Continued strong volume growth drove WhiteWave-Alpro net sales of $478.3 million, 8% higher than third quarter 2009 net sales of $443.5 million.

Among the key brands at WhiteWave-Alpro, Horizon Organic® milk sales again outpaced the organic milk category to post high-teens net sales growth. The Company’s plant-based beverage products, which include both Silk® and Alpro®, continued to post strong results. Silk sales increased mid-single digits in the quarter as a result of the strong performance of Silk PureAlmond®. Alpro sales were up high single digits in the quarter on a constant currency basis. International Delight® Coffee Creamer net sales grew in the low-double digits on continued strength behind product and packaging innovation. LAND O LAKES® brand creamer sales increased mid-single digits.

WhiteWave-Alpro operating income increased 10% in the third quarter to $39.4 million, from $35.8 million in the third quarter of 2009. Profit growth was somewhat limited by increased manufacturing and distribution costs driven by capacity constraints. The WhiteWave-Alpro segment operating income includes a $2.3 million loss related to the Company’s interest in the Hero/WhiteWave joint venture, but excludes a $2.3 million loss from the joint venture attributable to the non-controlling interest.

CORPORATE AND OTHER EXPENSE

Corporate and Other expense totaled $52.8 million for the third quarter of 2010, as compared to $52.4 million in the third quarter of 2009.

CASH FLOW

Net cash provided by continuing operations for the nine months ended September 30, 2010 totaled $379.3 million, compared to $500.9 million for the comparable period in 2009. Free cash flow provided by operations, which is defined as net cash provided by continuing operations less net capital expenditures, totaled $198.7 million for the nine months ended September 30, 2010, compared to $330.1 million in the first three quarters of  2009.  A reconciliation between net cash provided by continuing operations and free cash flow provided by continuing operations is provided below.

Net capital expenditures for the first nine months of 2010 totaled $180.6 million, compared to $170.8 million in the same period of 2009. The Company expects full year capital expenditures to be approximately $300 million for 2010.

Total debt at September 30, 2010, net of $102.1 million in cash on hand, was approximately $4.0 billion. The Company’s funded debt to EBITDA ratio, as defined by its credit agreements, was 4.9x as of the end of the third quarter, compared to a current covenant of 5.5x.

FORWARD OUTLOOK

“In the near term we expect our Fresh Dairy Direct-Morningstar business to remain challenged as the retail environment continues to be very competitive and volumes across much of the portfolio are soft,” stated Engles. “We believe these pressures will continue in the fourth quarter and at least through the first half of next year.

“Price concessions that have been given will continue to impact year-over-year comparisons into 2011, regardless of whether we see a return to historical retail pricing levels or not.  We clearly are not satisfied with our results, and in order to offset these pressures and improve our financial performance, we remain intensely focused on cost reduction. I’m confident that in time we will get in front of this cost-price squeeze in a way that will be difficult for our competitors to match.

“At WhiteWave-Alpro, we expect the strong performance we’ve seen all year to continue through the fourth quarter, where our creamers business typically does seasonally well.

“Given our run-rate as we exited the third quarter, but keeping in mind the typical strong seasonality of the fourth quarter, we are expecting fourth quarter earnings of between $0.13 to $0.18 per share.”

RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

Net sales for the nine months ended September 30, 2010 totaled $9.0 billion, an increase of 10% from net sales for the same period of last year, due to the pass-through of higher dairy commodity costs, the impact of acquisitions, and strong growth in net sales at WhiteWave-Alpro. Net income for the first nine months of the year totaled $112.2 million, compared with $190.0 million in the nine months ended September 30, 2009.  Diluted earnings per share for the nine months ended September 30, 2010 totaled $0.61, compared to $1.11 for the first nine months of 2009.

On an adjusted basis, net income for the nine months ending September 30, 2010 totaled $119.7 million, compared to $217.9 million in the same period of 2009.  Adjusted diluted earnings per share for the first nine months of 2010 totaled $0.65 compared to $1.28 in the nine months ended September 30, 2009.

INDUCEMENT GRANTS

The Company also announced today that it granted stock options (“Options”) to purchase an aggregate of 99,929 shares of common stock and 34,216 restricted stock units (“RSUs”) in May 2010 to a newly hired, non-executive officer employee in connection with his employment with the Company.  The Company also announced that it granted 36,110 Options and 12,364 RSUs in August 2010, and agreed to grant additional Options and RSUs in February 2011 in amounts to be determined in accordance with the Company’s standard valuation practices for annual long-term incentive grants, to a newly hired, non-executive officer employee in connection with his employment with the Company.  The Options described above have an exercise price equal to the fair market value of Dean Foods stock at the close of business on the grant date, and vest in three equal annual installments, beginning on the first anniversary of the date of grant, expiring on the tenth anniversary of the date of grant.  The RSUs described above vest in three equal annual installments, beginning on the first anniversary of the date of grant.  All awards described above were approved by the Compensation Committee of the Company’s Board of Directors without stockholder approval as “inducement grants,” as such term is defined by the New York Stock Exchange.

COMPARISON OF ADJUSTED INFORMATION TO GAAP INFORMATION

The adjusted financial results contained in this press release are from continuing operations and are adjusted to eliminate the net expense or net gain related to the items identified below. This information is provided in order to allow investors to make meaningful comparisons of the Company's operating performance between periods and to view the Company's business from the same perspective as Company management. Because the Company cannot predict the timing and amount of charges associated with non-recurring items, write off of financing costs, closed or anticipated to close deal costs, gains or losses on foreign exchange forward contracts or facility closings and reorganizations, management does not consider these costs when evaluating the Company's performance, when making decisions regarding the allocation of resources, in determining incentive compensation for management, or in determining earnings estimates. These costs are not presented in any of the Company’s operating segments. This non-GAAP financial information is provided as additional information for investors and is not in accordance with or an alternative to GAAP. These non-GAAP measures may be different than similar measures used by other companies. A full reconciliation for the three and nine month periods ended September 30, 2010, and 2009 calculated according to GAAP on an adjusted basis is attached.

CONFERENCE CALL WEBCAST

A webcast to discuss the Company’s financial results and outlook will be held at 9:30 a.m. ET today and may be heard live by visiting the “Webcast” section of the Company’s site at www.deanfoods.com/investors. A slide presentation will accompany the webcast.

ABOUT DEAN FOODS

Dean Foods is one of the leading food and beverage companies in the United States. The Company’s Fresh Dairy Direct-Morningstar business is the largest processor and distributor of milk and other dairy products in the country. The WhiteWave-Alpro business produces and sells a variety of nationally branded soy, dairy and dairy-related products. Popular brands include: Silk® and Alpro® dairy milk alternatives, Horizon Organic® milk and dairy products, International Delight® coffee creamers, and LAND O LAKES® creamers.

FORWARD-LOOKING STATEMENTS

Some of the statements in this press release are "forward-looking" and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These "forward-looking" statements include statements relating to, among other things, projected sales, operating income, net income, adjusted diluted earnings per share, debt covenant compliance, expected financial performance and capital structure. These statements involve risks and uncertainties that may cause results to differ materially from the statements set forth in this press release. The Company's ability to meet targeted financial and operating results, including targeted sales, operating income, net income, earnings per share, cost cutting initiatives, and to maintain compliance with financial covenants depends on a variety of economic, competitive and governmental factors, including raw material availability and costs, the demand for the Company’s products, the Company’s ability to integrate its acquisitions and the Company’s ability to access capital under its credit facilities or otherwise, many of which are beyond the Company's control and which are described in the Company's filings with the Securities and Exchange Commission. The Company's ability to profit from its branding initiatives depends on a number of factors including consumer acceptance of the Company's products. The forward-looking statements in this press release speak only as of the date of this release. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to such statements to reflect any change in its expectations with regard thereto or any changes in the events, conditions or circumstances on which any such statement is based.

CONTACT: Corporate Communications, Marguerite Copel, +1-214-721-1273; or Investor Relations, Barry Sievert, +1-214-303-3438

SOURCE Dean Foods Company

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