Dean Foods Reports Third Quarter 2013 Results

DALLAS, Nov. 12, 2013 /PRNewswire/ -- Dean Foods Company (NYSE: DF) today announced third quarter 2013 results. The Company reported third quarter 2013 earnings from continuing operations attributable to Dean Foods of $4.35 per share, compared to a third quarter 2012 loss of $0.02 per share. On an adjusted basis, third quarter 2013 diluted earnings from continuing operations were $0.12 per share, compared to third quarter 2012 adjusted earnings of $0.14 per share.  

Third quarter 2013 operating income totaled $23 million, compared to third quarter 2012 operating income of $108 million. Third quarter 2013 adjusted operating income totaled $42 million, compared to $57 million in the year-ago period on a pro forma and comparative basis.

"We continue to feel confident in our long-term trajectory," said Gregg Tanner, Chief Executive Officer of Dean Foods. "We are actively working to extend our competitive advantages through aggressively reducing costs and enhancing our strengths and capabilities. At the same time, we have put the pieces in place to enhance shareholder value by utilizing our strong balance sheet and growing adjusted free cash flows, specifically through the adoption of a dividend policy, the initiation of a cash tender offer for up to $400 million of our bonds, and an increase in our available share repurchase authorization up to $300 million."

Net income attributable to Dean Foods totaled $415 million for the third quarter of 2013. On an adjusted basis, third quarter net income attributable to Dean Foods totaled $11 million.  

Net sales for the third quarter of 2013 totaled $2.2 billion, compared to $2.2 billion of net sales in the third quarter of 2012, on a pro forma and comparative basis.

Dean Foods' share of U.S. fluid milk sales volume declined to 34.9 percent during the third quarter from 36.4 percent in the second quarter of 2013. Industry fluid milk volumes declined approximately 1.7 percent year-over-year in the third quarter on an unadjusted basis, based on USDA data and company estimates. Due to the previously disclosed loss of business at a large retailer, Dean Foods' unadjusted fluid milk volumes declined 10 percent on a year-over-year basis. Excluding the previously announced loss of business at a major customer and another customer's decision to vertically integrate its dairy operations last year, Dean Foods' milk volumes declined 1.7 percent in the quarter, consistent with the overall category. Total volumes across all products declined 8 percent to 685 million gallons.

The Company continues to make solid progress against its target of $120 million of cost savings in 2013, including the planned closure of eight to twelve (10-15%) of its manufacturing facilities by mid-2014. The Company has closed or announced the closure of eight plants since its accelerated cost reduction initiative began in the fourth quarter of 2012. As of the end of the third quarter, seven of the announced closures have ceased operations.

The third quarter 2013 average Class I Mover, a measure of raw milk costs, was $18.98 per hundred-weight, an increase of 15 percent from the third quarter of 2012, and 5 percent above the second quarter 2013 level.

CASH FLOW

Consolidated net cash used in continuing operations for the nine months ended September 30, 2013 totaled $259 million. Free cash flow from continuing operations, which is defined as net cash provided by or used in continuing operations less capital expenditures, was an outflow of $349 million for the nine months ended September 30, 2013. Negative cash flow was driven primarily by one-time items, most of which were associated with strategic separation activities, including the payment of $315 million of taxes related to the Morningstar divestiture, $35 million related to the impact of moving WhiteWave and Morningstar accounts receivable from intercompany to third party, and $31 million of deal costs, as well as a $19 million litigation settlement payment in the second quarter. On an adjusted basis, which excludes these and certain other items, Dean Foods generated $97 million in free cash flow through the first nine months of 2013.  A reconciliation between net cash used in continuing operations and adjusted free cash flow provided by continuing operations is provided in the tables below.

NET DEBT

Total debt at September 30, 2013, net of $361 million cash on hand, was approximately $671 million. The Company's funded net debt to EBITDA ratio was 1.64 times as of the end of the third quarter of 2013.

DIVIDEND POLICY

Demonstrating its strong commitment to driving total shareholder returns, the Company announced that its Board of Directors has adopted a dividend policy with the intention of paying a $0.07 quarterly dividend beginning in the first quarter of 2014 ($0.28 per share on an annual basis).

SHARE REPURCHASE AUTHORIZATION

Today, the Company also announced that the Board of Directors has increased the Company's available share repurchase authority to $300 million, providing an additional tool for shareholder value creation. Management intends to repurchase shares on an opportunistic basis.

BOND TENDER OFFER

Dean Foods also announced today that it has initiated a cash tender offer for up to $400 million aggregate principal amount of its 9¾% 2018  and 7% 2016 bonds, with preference given to the 2018 bonds. The tender offer will be funded with existing cash on hand, as well as borrowings under the Company's senior secured credit facility. Management expects the transaction to close before the end of the year and to result in reduced interest expense going forward.

FORWARD OUTLOOK

"Turning to the forward outlook for the fourth quarter, although challenges remain, we still expect to deliver solid full-year results," continued Tanner. "The dairy commodity environment looks more challenging than previously thought as prices remain stubbornly high despite strong domestic production growth. Industry volumes remain soft. We expect to continue to have temporarily higher costs in the fourth quarter related to the plant closure activities. We expect this to be partially offset by our recent new business wins that will begin to improve our volume performance in the fourth quarter.

"All told, we expect fourth quarter adjusted earnings per share of $0.17- $0.23 per share, resulting in full year 2013 adjusted earnings per share of between $0.85 and $0.91.

"We now expect full year 2013 adjusted EBITDA to be between $391 and $400 million and adjusted free cash flow of approximately $100 million."

CONFERENCE CALL/WEBCAST

A webcast to discuss the Company's financial results and outlook will be held at 9:00 a.m. ET today and may be heard live by visiting the "Webcast" section of the Company's website at http://www.deanfoods.com/. A slide presentation will accompany the webcast.

ABOUT DEAN FOODS

Dean Foods^® is a leading food and beverage company in the United States and is the nation's largest processor and direct-to-store distributor of fluid milk. Headquartered in Dallas, Texas, the Dean Foods portfolio includes TruMoo®, the leading national flavored milk brand, along with well-known regional dairy brands such as Alta Dena^®, Berkeley Farms^®, Country Fresh^®, Dean's^®, Garelick Farms^®, LAND O LAKES^® milk and cultured products*, Lehigh Valley Dairy Farms^®, Mayfield^®, McArthur^®, Meadow Gold^®, Oak Farms^®, PET^®**, T.G. Lee^®, Tuscan^® and more. In all, Dean Foods has more than 50 local and regional dairy brands and private labels. Dean Foods also makes and distributes ice cream, cultured products, juices, teas, and bottled water. Nearly 19,000 employees across the country work every day to make Dean Foods the most admired and trusted provider of wholesome, great-tasting dairy products at every occasion. For more information about Dean Foods and its brands, visit www.deanfoods.com.

*The LAND O LAKES brand is owned by Land O'Lakes, Inc. and is used by license.
**PET is a trademark of The J.M. Smucker Company and is used by license.

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, diluted earnings per share, adjusted diluted earnings per share, debt covenant compliance, cost reduction strategies, divestitures, our dividend policy, planned share repurchases, our pending debt tender offer and expected financial performance. 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 cost reductions, sales, operating income, net income and earnings per share depends on a variety of economic, competitive and governmental factors, including raw material availability and costs, the demand for the Company's products, 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 declaration and payment of cash dividends under our dividend policy remains at the sole discretion of the Board of Directors or a committee thereof and will depend upon our financial results, cash requirements, future prospects, applicable law and other factors that may be deemed relevant by the Board or such committee. For other risks and uncertainties that may cause actual results to differ from the forward-looking statements contained in this press release, see the "Risk Factors" section of the Company's most recent Annual Report on Form 10-K filed with the SEC. 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.

NON-GAAP FINANCIAL MEASURES

In addition to the results prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), we have presented certain adjusted financial results and certain other non-GAAP financial measures, including Adjusted EBITDA, Free Cash Flow and Adjusted Free Cash Flow, each as defined below.  These non-GAAP financial measures are from continuing operations and are adjusted to eliminate the net expense, net gain and cash flow impacts related to the items identified in the "Reconciliation of GAAP to Non-GAAP Information" tables below. This information is provided to assist investors in making meaningful comparisons of our operating performance between periods and to view our business from the same perspective as our management. Additionally, certain pro forma adjustments were made to our GAAP results for the three and nine months ended September 30, 2012 to facilitate a meaningful comparison of operating results between 2012 and 2013. Because we cannot predict the timing and amount of charges associated with certain non-recurring items; asset impairment charges; gains or losses related to discontinued operations and divestitures; deal, integration and separation costs; facility closing, reorganization and realignment costs; litigation settlements; and certain other charges, as well as the timing and amount of any cash outflows or inflows associated with such items, our  management does not consider these items when evaluating our performance, when making decisions regarding the allocation of resources, in determining incentive compensation for management, or in determining earnings estimates.

We have defined Adjusted EBITDA as net income attributable to Dean Foods, which is the most comparable GAAP financial measure, adjusted for the items above as well as interest, taxes, depreciation and amortization. We believe Adjusted EBITDA is a useful measure for analyzing the performance of our business and is an indicator of our ability to incur and service indebtedness and generate free cash flow. We also believe that EBITDA measures are commonly reported and widely used by investors and other interested parties as measures of a company's operating performance and debt servicing ability because such measures assist in comparing performance on a consistent basis without regard to capital structure, depreciation or amortization (which can vary significantly) and non-operating factors (such as historical cost). EBITDA is also a widely-accepted financial indicator of a company's ability to incur and service indebtedness. The reconciliation of net income to Adjusted EBITDA for the three and nine months ended September 30, 2013 and 2012 is included in the tables below.

Additionally, we believe free cash flow provided by (used in) continuing operations ("Free Cash Flow") and adjusted free cash flow provided by (used in) continuing operations ("Adjusted Free Cash Flow") are meaningful non-GAAP measures that offer supplemental information and insight regarding the liquidity of our operations and our ability to generate sufficient cash flow above what is required in our business to sustain our operations.

We define Free Cash Flow as net cash provided by continuing operations less cash payments for capital expenditures.

We define Adjusted Free Cash Flow as Free Cash Flow adjusted for the impact on operating cash flows related to certain significant or non-recurring items, including income taxes paid on the divestiture of Morningstar; litigation payments; payments associated with our restructuring, reorganization and realignment activities; transaction costs and other separation costs resulting from the Morningstar divestiture and WhiteWave spin-off in 2013; income tax payments related to certain deferred intercompany transactions between us and WhiteWave which were recognized by us upon  completion of the WhiteWave spin-off; and other increases in or reductions to income tax payments associated with the adjustments described above.  Additionally, the computation of Adjusted Free Cash Flow for the nine months ended 2013 has been further adjusted to exclude the net impact on working capital of accounts receivable and accounts payable associated with our transitional services agreements with WhiteWave and Morningstar, as well as the movement of WhiteWave and Morningstar trade accounts receivable and trade accounts payable from intercompany transactions (which were previously eliminated in consolidation) to third-party transactions in 2013.  A reconciliation of net cash used in continuing operations, which is the most comparable U.S. GAAP financial measure, to Adjusted Free Cash Flow, is included in the tables below.

This non-GAAP financial information is provided as additional information for investors and is not in accordance with, or an alternative to, GAAP. Additionally, these non-GAAP measures may be different than similar measures used by other companies. We believe that the presentation of these non- GAAP financial measures, when considered together with our GAAP financial measures and the reconciliations to the corresponding GAAP financial measures, provides investors with a more complete understanding of the factors and trends affecting our business than could be obtained absent these disclosures.  A full reconciliation of our results and financial measures reported in accordance with GAAP for the three and nine months ended September 30, 2013 and 2012 to the non-GAAP financial measures described above is set forth herein.  

CONTACT: Corporate Communications, Liliana Esposito, +1-214-721-7766; or Investor Relations, Barry Sievert, +1-214-303-3438  

For the three and nine months ended September 30, 2013 and 2012, the adjusted results and certain other non-GAAP financial measures differ from the Company's results under GAAP due to the exclusion of net gains or net losses associated with certain non-recurring items, including the disposition of our investment in WhiteWave common stock that was completed in July 2013; asset impairment charges; discontinued operations; integration and separation costs; and facility closing, reorganization and realignment costs. These adjustments are made to facilitate meaningful comparisons of our operating performance between periods as the Company cannot predict the timing and amount of charges associated with such items.  Additionally, certain pro forma adjustments were made to our GAAP results for the three and nine months ended September 30, 2012 to reflect the pro forma impact of certain commercial agreements that became effective in October 2012 related to our strategic activities, to facilitate a meaningful comparison of our operating performance between 2013 and 2012.  These adjustments are described in more detail below. 

SOURCE Dean Foods Company