Dean Foods Reports Third Quarter 2014 Results

DALLAS, Nov. 10, 2014 /PRNewswire/ -- Dean Foods Company (NYSE: DF) today announced third quarter 2014 results.

The Company reported a third quarter 2014 diluted loss from continuing operations attributable to Dean Foods of $0.16 per share, compared to third quarter 2013 diluted income of $4.35 per share. On an adjusted basis, the third quarter 2014 diluted loss from continuing operations was $0.03 per share, compared to third quarter 2013 adjusted earnings of $0.12 per share.

Third quarter 2014 operating loss totaled $1 million, compared to third quarter 2013 operating income of $23 million. Third quarter 2014 adjusted operating income totaled $10 million, compared to adjusted operating income of $42 million in the year-ago period.

"Given the continued challenges facing the dairy industry due to the dairy commodity environment, we are encouraged by the sequential improvement of our operating results which we believe reflects the success of our current business efforts," said Gregg Tanner, Chief Executive Officer of Dean Foods. "This year has clearly been the most difficult operating environment we've ever experienced as a company. And so, we remain rigorous in our focus on the things that we control: price realization, cost productivity and volume at margins that deliver an appropriate return."

Chris Bellairs, Chief Financial Officer of Dean Foods, added, "Against the backdrop of this difficult environment, we are seeing positive signs of progress resulting from the focused efforts of our employees to drive improvement throughout all aspects of our operations."

"In the third quarter, these efforts allowed us to deliver sequentially improving adjusted operating income. We believe they will pave the way for us to begin rebuilding our profitability in 2015 and position us for long term success," added Tanner.

Net loss attributable to Dean Foods totaled $16 million for the third quarter of 2014 compared to $415 million of net income attributable to Dean Foods for the year-ago period. On an adjusted basis, third quarter net loss attributable to Dean Foods totaled $3 million, compared to $11 million of net income attributable to Dean Foods for the third quarter of 2013.

Net sales for the third quarter of 2014 totaled $2.4 billion, compared to $2.2 billion of net sales in the third quarter of 2013.

Dean Foods' unadjusted fluid milk volumes declined 1% on a year-over-year basis. This quarter's volumes reflect the last of the negative impacts of the RFP-driven volume loss from a significant customer in 2013. Excluding the impact of the RFP, Dean Foods' fluid milk volumes decreased 0.6% in the quarter.

The USDA has not published category data for any of the months in the third quarter.

"Our visibility into our share performance is hampered by USDA data now lagging longer than usual. But, when published, we believe the USDA data will show that the category continued to decline in the third quarter," added Tanner. "With our volume performance in the third quarter, if the USDA data were to report a category decline of 3% our share would approximate 35.6%. This would represent a 0.7% increase in our share of the fluid milk category since bottoming out in the third quarter of 2013, at 34.9%. With pricing actions beginning to take effect we may have experienced a sequential decline in our share, which was 35.9% in the second quarter."

The third quarter 2014 average Class I Mover, a measure of raw milk costs, was $23.51 per hundred-weight, an increase of 24% from the third quarter of 2013. The third quarter 2014 average was the second highest quarterly Class I Mover average in the history of the U.S. dairy industry, just less than one percent below the second quarter of 2014. The Company anticipates the elevated Class I Mover trend to continue and the fourth quarter average to be among the highest averages ever.

CASH FLOW
Consolidated net cash from continuing operations for the nine months ended September 30, 2014, totaled $48 million. Free cash flow used in continuing operations, which is defined as net cash provided by or used in continuing operations less capital expenditures, was $41 million for the nine months ended September 30, 2014. On an adjusted basis, which excludes certain other items as outlined within the reconciliation tables below, Dean Foods utilized $11 million of free cash flow through the first nine months of 2014.

DEBT
Total debt at September 30, 2014, net of $30 million cash on hand, was approximately $948 million. The Company's funded net debt to EBITDA ratio calculated in accordance with its credit agreements was 4.23 times as of the end of the third quarter of 2014.

Subject to obtaining board approval, the Company intends to redeem the $23.8 million of remaining senior notes due 2018 during the fourth quarter.

Forward Outlook
"Turning to the forward outlook for the fourth quarter, although challenges remain, we expect to deliver sequentially improving results," continued Tanner. "The dairy commodity environment remains extremely challenging and for the fourth quarter we expect raw milk costs will remain stubbornly high despite continued strong global production growth and waning demand. We don't expect much relief on raw milk costs until early 2015, but we do expect significant butterfat cost declines at the end of the fourth quarter. Industry volumes remain soft and we expect our fourth quarter volumes to be down low single digits, as compared to prior year, but with a continued improvement to net price realization. Further, as we move past our extended period of heavy plant closure activity and realize further costs reductions, we believe the rate of per-unit production and distribution costs will continue to decline and flatten from a year over year basis."

"All told, we expect fourth quarter adjusted diluted earnings of between $0.05 and $0.15 per share, resulting in full year 2014 adjusted diluted net loss per share of between $0.06 and $0.16."

"We now expect full year 2014 adjusted EBITDA to be between $193 and $208 million and adjusted free cash flow to end the year at approximately breakeven. We also expect to be at the low end of our prior 2014 capital expenditure guidance of $150-175 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 18,000 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 made 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, including statements relating to: (1) projected sales (including specific product lines and the Company as a whole), profit margins, net income, earnings per share, free cash flow and debt covenant compliance, (2) the Company's regional and national branding initiatives, (3) the Company's innovation, and research and development plans or its ability to successfully launch new products, (4) commodity prices and other inputs and the Company's ability to forecast or predict commodity prices, milk production and milk exports, (5) the Company's cost-savings initiatives, including plant closures and route reductions, and its ability to accelerate any such initiatives or to achieve expected savings, (6) the Company's plans related to leverage, including the planned redemption of our outstanding senior notes due 2018, (7) planned capital expenditures, (8) the status of the Company's litigation matters, (9) the impact of divestitures including the sale of Morningstar and the divestiture and spin-off of the Company's former subsidiary, The WhiteWave Foods Company, (10) the Company's dividend policy, and (11) possible repurchases of shares of common stock. These statements involve risks and uncertainties that may cause results to differ materially from those set forth in this press release. Financial projections are based on a number of assumptions. Actual results could be materially different than projected if those assumptions are erroneous. The cost and supply of commodities and other raw materials are determined by market forces over which the Company has limited or no control. Sales, operating income, net income, debt covenant compliance, financial performance and adjusted earnings per share can vary based on a variety of economic, governmental and competitive factors, which are identified in the Company's filings with the Securities and Exchange Commission, including in its most recent Form 10-K and Forms 10-Q. The Company's ability to profit from its branding initiatives depends on a number of factors including consumer acceptance of its products. The declaration and payment of cash dividends under the Company's dividend policy remains at the sole discretion of the Board of Directors or a committee thereof and will depend upon its financial results, cash requirements, future prospects, restrictions in its credit agreement and debt covenant compliance, applicable law and other factors that may be deemed relevant by the Board or such committee. All forward-looking statements in this press release speak only as of the date of this press release. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in our expectations with regard thereto or any changes in the events, conditions or circumstances on which any such statement is based except as required by law.

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. 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 months and nine months ended September 30, 2014 and 2013 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 (used in) 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; 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 September 30, 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, 2014 and 2013 to the non-GAAP financial measures described above is set forth herein.

CONTACT: Corporate Communications, Jamaison Schuler, +1-214-721-7766; or Investor Relations, Scott Vopni, +1-214-303-3438

SOURCE Dean Foods Company

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