Adjusted Diluted Earnings per Share Improve 100% to $0.28
DSD Dairy Operating Income Increases 21% over Year Ago Period
Company Announces New Joint Venture between WhiteWave and The Hero Group
DALLAS, Nov. 4 /PRNewswire-FirstCall/ — Dean Foods Company (NYSE: DF)
today announced that the Company earned $0.24 per diluted share from
continuing operations for the quarter ended September 30, 2008, compared with
$0.05 per diluted share from continuing operations in the third quarter of
2007. Net income from continuing operations for the third quarter of 2008
totaled $37.8 million, compared with $6.5 million in the prior year’s third
quarter.
On an adjusted basis (as defined below), diluted earnings per share were
$0.28, a 100% increase over the $0.14 per adjusted diluted share in the prior
year’s third quarter. Adjusted net income from continuing operations for the
third quarter was $43.5 million, compared to adjusted net income from
continuing operations of $18.7 million in the third quarter of 2007. The
increases in adjusted net income and earnings per diluted share were driven by
stronger results in the DSD Dairy segment, lower interest expense as a result
of the reduction in total debt outstanding and a lower effective tax rate,
offset by increased diluted shares outstanding.
“The third quarter results demonstrate the clear progress the business has
made over the last year. Third quarter adjusted operating income for the DSD
Dairy segment is 21% higher than the very difficult third quarter of last year
while fluid milk volumes were over 3% higher this quarter than the third
quarter of 2007,” commented Gregg Engles, Chairman and Chief Executive
Officer. “At WhiteWave-Morningstar, sales continue to grow at a strong pace,
while profitability was challenged in the quarter by increasing commodity
costs at Morningstar and the continued effects of higher organic milk costs on
WhiteWave’s Horizon Organic(R) brand. Overall, it was a very encouraging
quarter and positions us well to finish out the year strong.”
Summary of Dean Foods Third Quarter 2008 Segment and Operating Results
(in millions, except EPS)
% Change
Value from Q307
DSD Dairy:
Fluid Milk Volume N/A 3.2%
Operating Income $140.4 21%
WhiteWave-Morningstar:
Net Sales $671.3 9%
Operating Income $41.3 -4%
Consolidated Adjusted Operating Income: $140.8 14%
Adjusted Diluted Earnings per Share: $0.28 100%
DEAN FOODS CONSOLIDATED
Total net sales for the third quarter totaled $3.2 billion, 3% higher than
total net sales in the third quarter of 2007. Net sales increased in the
quarter due to strong acquisition-aided volume growth in the DSD Dairy segment
that were partially offset by the pass-through of lower overall dairy
commodity costs; and due to continued strong net sales growth at
WhiteWave-Morningstar.
Consolidated operating income in the third quarter totaled $131.8 million,
an increase of 28% from $103.3 million in the very challenging third quarter
of 2007. Adjusted third quarter consolidated operating income totaled $140.8
million, an increase of 14% from $123.1 million in the third quarter of 2007.
DSD DAIRY
DSD Dairy net sales for the third quarter were $2.52 billion, a 1%
increase from $2.50 billion in net sales for the third quarter of 2007. The
sales increase in the quarter was due to higher sales volumes offset by the
pass-through of lower overall dairy commodity costs. The third quarter average
Class I mover, which is an indicator of the Company’s raw milk costs, averaged
$18.97 per hundred-weight, 12% below the same period in 2007 but 7% higher
than the second quarter of 2008.
DSD Dairy operating income in the third quarter was $140.4 million, 21%
above the $116.5 million reported in the third quarter of 2007. DSD Dairy
results benefited from more favorable raw dairy commodity costs, increased
proceeds from excess cream sales, and strong cost controls, offset by higher
average energy and packaging costs.
WHITEWAVE – MORNINGSTAR
The WhiteWave-Morningstar segment reported third quarter net sales of
$671.3 million, 9% higher than third quarter 2007 net sales of $618.2 million.
The WhiteWave branded portfolio of products increased sales 13% over the prior
year period to $378.7 million. Net sales of Morningstar’s private label and
foodservice cultured and creamer products increased 4% over the third quarter
of 2007 to $292.6 million behind continued strong growth in yogurt, ice cream
mix and creamer sales.
Net sales of Horizon Organic milk increased nearly 20% over the year ago
period due to higher realized pricing, continued expanded distribution and
differentiated innovation. Silk(R) net sales increased in the low double
digits, driven by continued distribution expansion and integrated marketing
that featured both print and television advertising highlighting the heart
health benefits of the Silk product line. Improved price realization drove
International Delight(R) net sales growth in the high single digits. Land
O’Lakes(R) creamers also grew net sales in the high single digits as a result
of both higher volumes and commodity-related price increases.
Segment operating income in the third quarter for WhiteWave-Morningstar
was $41.3 million, compared to $43.1 million in the third quarter of 2007.
Segment operating margins were 6.2%, compared to 7.0% in the third quarter of
2007. Segment operating income in the quarter was adversely affected by
increasing dairy commodity costs at Morningstar, which is primarily impacted
by the CME butter price. CME butter prices averaged $1.62 per pound in the
third quarter, a 13% increase over the same period last year, and 12% higher
than the second quarter of 2008. Higher raw organic milk costs also continued
to challenge the Horizon Organic brand in the WhiteWave portfolio, offsetting
efficiency gains and improving profitability across the rest of the branded
portfolio.
CORPORATE EXPENSE
Corporate and other expenses totaled $41.0 million, in line with the
second quarter of 2008. This compares to $36.5 million in the third quarter of
2007. The increase in the quarter reflects the continued balancing of tight
cost controls with strategic investments behind building capabilities to
support the Company’s long-term strategic initiatives. Through the first three
quarters of 2008, corporate expense is 5% higher than the comparable period in
2007.
CASH FLOW
Net cash provided by continuing operations for the nine months ended
September 30, 2008 totaled $459 million, compared to $221 million for the
first nine months 2007. The increase in net cash provided by continuing
operations is due primarily to higher operating results, decreased working
capital requirements, and lower interest expense.
Free cash flow provided by operations in the nine months ended September
30, 2008 totaled $288 million, a $233 million increase over the $55 million in
the first nine months of 2007. A reconciliation between net cash provided by
continuing operations and free cash flow provided by continuing operations is
provided below.
Capital expenditures for the first nine months of 2008 totaled
$171 million, compared to $165 million for the first three quarters of 2007.
Through September 30, 2008, debt outstanding has decreased by $637 million
since December 31, 2007. Total debt at September 30, 2008, net of $25 million
in cash on hand, was approximately $4.6 billion. The Company’s funded debt to
EBITDA ratio, as defined by its credit agreements, declined to 5.35x as of the
end of the third quarter.
NEW JOINT VENTURE ANNOUNCED
In a separate press release issued today, the Company’s WhiteWave division
announced that it has formed a new strategic joint venture with The Hero
Group, producer of international fruit and infant nutrition brands Hero and
Beech-Nut. The collaboration will introduce new innovative chilled-fruit
products to North America. The 50/50 joint venture, called Hero-WhiteWave, is
based in Broomfield, Colorado. The partnership brings together Hero’s
expertise in fruit, innovation and process engineering, with WhiteWave’s deep
understanding of the American consumer and the manufacturing network and
go-to-market system of Dean Foods.
Hero-WhiteWave brings together the natural and organic brand leadership of
Dean Foods’ WhiteWave division with Hero’s history and strength as the global
number one jam producer and leader in chilled fruit-based and infant nutrition
products. Together, they will introduce American consumers to new innovative
chilled fruit products that have made Hero a leader in its markets in Europe.
The joint venture’s first product, Fruit2Day, is expected to launch by
mid-2009. Dean Foods expects the initial production ramp-up costs and
marketing expenses to decrease 2009 adjusted diluted earnings per share by
approximately six cents.
FORWARD OUTLOOK
“We feel very good about our performance in the third quarter and our
continued momentum as we finish out the year,” said Jack Callahan, Dean Foods
Chief Financial Officer. “The DSD Dairy segment’s results continued to improve
as we moved through the quarter and commodity costs eased. We enter the fourth
quarter with favorable commodity and business trends, even as we deal with an
increase in competitive behavior in the market.
“At WhiteWave-Morningstar, top-line growth continues to be strong with all
of the key brands posting solid growth and Morningstar continuing to have
particular success in its yogurt, half and half and ice cream mix business.
With pricing coming better into line with commodity costs at Morningstar, we
expect WhiteWave-Morningstar to return to profit growth in the fourth quarter.
“All told, we expect to finish out the year very much on track, and
continue to expect to deliver on our original guidance for adjusted diluted
earnings per share of at least $1.20.”
“We look forward to successfully closing out 2008 very much on track,”
continued Mr. Engles. “Looking ahead to next year, we expect both of our
operating segments to make a strong contribution toward our overall growth.
As you consider 2009, however, there are a few key factors I would like you to
keep in mind. First, our investment in plant start up and initial marketing to
support the launch of the Fruit2Day platform will be approximately six cents
dilutive to earnings. Second, a portion of our growth will be reinvested in
selective investments in areas like supply chain, R&D, and distribution
technology that support long-term cost savings programs. Third, competitive
pressures have clearly increased in certain geographies as volumes shift
across the industry. Fourth, given the recent turmoil in the markets, we
expect incremental pension expense to be approximately three cents dilutive to
2009 earnings per share. Additionally, keep in mind we are operating against a
backdrop of a very tough economy and consumers that are under stress.
“Despite these challenges, the momentum in the business, combined with our
ongoing efforts to drive out costs, give us confidence that we will be able to
deliver earnings per share growth in the mid-teens for 2009.”
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
Net sales for the nine months ended September 30, 2008 totaled
$9.4 billion, an increase of 9% from net sales for the same period of last
year, due to the pass-through of higher average dairy commodity costs,
stronger volumes in DSD Dairy and increased sales at WhiteWave-Morningstar.
Net income from continuing operations for the first nine months of 2008
totaled $117.5 million, compared with $97.9 million in the first three
quarters of the previous year. Diluted earnings per share from continuing
operations for the nine months ended September 30, 2008 totaled $0.77,
compared to $0.71 for the first nine months of 2007.
On an adjusted basis (as defined below), net income from continuing
operations for the nine months totaled $128.0 million, compared to
$127.4 million in the same period of 2007. Adjusted diluted earnings per
share from continuing operations for the first nine months of 2008 totaled
$0.84 compared to $0.93 in the first three quarters of 2007.
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 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, 2008 and 2007
calculated according to GAAP and on an adjusted basis is attached.
For the quarter ended September 30, 2008, the adjusted results reported
above differ from the Company’s results under GAAP by excluding the following
facility closing and reorganization charges:
- a $9.0 million charge ($5.7 million net of income tax) related to
facility closings and reorganization costs.
For the quarter ended September 30, 2007, the adjusted results reported
above differ from the Company’s results under GAAP by excluding the following
facility closing and reorganization charges, and other nonrecurring charges:
- a $19.8 million charge ($11.8 million net of income tax) related to the
realignment of DSD Dairy’s finance and accounting organization, DSD
Dairy’s management realignment, workforce reduction activities in DSD
Dairy’s operations, and facility closings, as well the sale of our tofu
business; and - a $0.7 million charge ($0.4 million net of income tax) related to
non-recurring special dividend costs.
For the nine months ended September 30, 2008, the adjusted results
reported above differ from the Company’s results under GAAP by excluding the
following facility closing, reorganization, and other nonrecurring charges:
- a $16.4 million charge ($10.1 million net of income tax) related to
facility closings and reorganization costs; and - a $0.6 million charge ($0.4 million net of income tax) related to
non-recurring special dividend costs.
For the nine months ended September 30, 2007, the adjusted results
reported above differ from the Company’s results under GAAP by excluding the
following facility closing, reorganization, and other nonrecurring charges:
- a $29.4 million charge ($17.8 million net of income tax) related to the
realignment of DSD Dairy’s finance and accounting organization, DSD
Dairy’s management realignment, workforce reduction activities in DSD
Dairy’s operations, and facility closings, as well the sale of our tofu
business; and - a $19.2 million charge ($11.7 million net of income tax) related to
non-recurring special dividend costs, and the write-off of finance
costs resulting from the completion of our senior credit facility.
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 http://www.deanfoods.com/investors. There
will be a slide presentation along with the webcast.
ABOUT DEAN FOODS
Dean Foods is one of the leading food and beverage companies in the United
States. The Company’s DSD Dairy segment is the largest processor and
distributor of milk and other dairy products in the country, with products
sold under more than 50 familiar local and regional brands and a wide array of
private labels. The Company’s WhiteWave-Morningstar segment markets and sells
a variety of nationally branded dairy and dairy-related products, such as
Silk(R) soymilk and cultured soy products, Horizon Organic(R) milk and other
dairy products, International Delight(R) coffee creamers, LAND O’LAKES(R)
creamers and other fluid dairy products. Our WhiteWave-Morningstar segment’s
Rachel’s Organic(R) dairy products brand is the third largest organic yogurt
brand in the United Kingdom. Additionally, our WhiteWave-Morningstar segment
markets and sells private label cultured and extended shelf life dairy
products through our Morningstar platform.
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 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 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 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, +1-214-303-3437
A separate press release “WHITEWAVE FOODS AND HERO GROUP PARTNER IN NORTH
AMERICA” is also being issued today by Dean Foods’ WhiteWave Foods division.
(Tables to follow)
DEAN FOODS COMPANY
Condensed Consolidated Income Statements
(Unaudited)
(In thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2008 2007 2008 2007
Net sales $3,194,669 $3,116,796 $9,374,188 $8,590,190
Cost of sales 2,462,949 2,457,473 7,214,574 6,555,543
Gross profit 731,720 659,323 2,159,614 2,034,647
Operating costs and
expenses 590,946 536,201 1,718,148 1,594,160
Facility closings,
reorganizations and
other costs 8,960 19,816 16,370 29,391
Operating income 131,814 103,306 425,096 411,096
Interest expense 74,709 89,657 235,026 244,384
Other (income) expense (242) 612 515 5,458
Income from continuing
operations before
income taxes 57,347 13,037 189,555 161,254
Income taxes 19,544 6,520 72,095 63,357
Income from continuing
operations 37,803 6,517 117,460 97,897
Income (loss) from
discontinued operations,
net of tax (51) (35) (51) 821
Net income $37,752 $6,482 $117,409 $98,718
Basic earnings per share:
Income from continuing
operations $0.25 $0.05 $0.80 $0.75
Income (loss) from
discontinued
operations - - - 0.01
Net income $0.25 $0.05 $0.80 $0.76
Basic average common
shares 153,137 130,671 147,688 129,866
Diluted earnings per
share:
Income from continuing
operations $0.24 $0.05 $0.77 $0.71
Income (loss) from
discontinued
operations - - - 0.01
Net income $0.24 $0.05 $0.77 $0.72
Diluted average common
shares 157,286 137,669 152,435 137,068
DEAN FOODS COMPANY
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
September 30, December 31,
ASSETS 2008 2007
Cash and cash equivalents $24,720 $32,555
Other current assets 1,500,812 1,499,429
Total current assets 1,525,532 1,531,984
Property, plant and equipment, net 1,821,800 1,798,378
Intangibles and other assets 3,728,535 3,702,994
Total Assets $7,075,867 $7,033,356
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities, excluding
debt $1,034,801 $907,270
Total long-term debt, including
current portion 4,635,427 5,272,351
Other long-term liabilities 786,845 802,468
Total stockholders' equity 618,794 51,267
Total Liabilities and Stockholders'
Equity $7,075,867 $7,033,356
DEAN FOODS COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine months ended September 30,
Operating Activities 2008 2007
Net cash provided by continuing
operations $458,723 $220,689
Net cash used in discontinued
operations (463) -
Net cash provided by operating
activities $458,260 $220,689
Investing Activities
Additions to property, plant and
equipment (171,008) (165,192)
Cash outflows for acquisitions and
investments, net of cash received (75,200) (131,689)
Net proceeds from divestitures - 12,169
Proceeds from sale of fixed assets 7,121 11,831
Net cash used in investing
activities (239,087) (272,881)
Financing Activities
Proceeds from the issuance of debt - 1,912,500
Repayment of debt (27,741) (327,804)
Net proceeds from (payments for)
revolver and receivables-backed
facility (625,378) 413,100
Payments of financing costs - (31,281)
Issuance of common stock, net 418,746 27,752
Payment of special cash dividend - (1,942,738)
Tax savings on share-based
compensation 7,365 14,529
Net cash provided (used) by
financing activities (227,008) 66,058
Increase (decrease) in cash and cash
equivalents (7,835) 13,866
Beginning cash balance 32,555 31,140
Ending cash balance $24,720 $45,006
DEAN FOODS COMPANY
Segment Information
(Unaudited)
(In thousands)
Three months ended Nine months ended
September 30, September 30,
2008 2007 2008 2007
Net sales:
DSD Dairy $2,523,357 $2,498,634 $7,432,072 $6,851,486
WhiteWave-Morningstar 671,312 618,162 1,942,116 1,738,704
Total $3,194,669 $3,116,796 $9,374,188 $8,590,190
Segment operating income
(loss):
DSD Dairy $140,444 $116,543 $425,606 $411,347
WhiteWave-Morningstar 41,321 43,062 136,012 144,064
Corporate / Other (40,991) (36,483) (120,152) (114,924)
Subtotal 140,774 123,122 441,466 440,487
Facility closings,
reorganizations and
other costs (8,960) (19,816) (16,370) (29,391)
Total operating
income $131,814 $103,306 $425,096 $411,096
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(In thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2008 2007 2008 2007
Reconciliation of GAAP to
adjusted operating income from
continuing operations
GAAP operating income from
continuing operations $131,814 $103,306 $425,096 $411,096
Adjustment:
Facility closings,
reorganizations and other
costs 8,960 19,816 16,370 29,391
Adjusted operating income from
continuing operations $140,774 $123,122 $441,466 $440,487
Reconciliation of GAAP to
adjusted net income from
continuing operations
GAAP net income from continuing
operations $37,803 $6,517 $117,460 $97,897
Adjustments, net of tax:
Facility closings,
reorganizations and other
costs 5,689 11,814 10,144 17,844
Debt refinancing and special
dividend costs - 409 354 11,653
Adjusted net income from
continuing operations $43,492 $18,740 $127,958 $127,394
Reconciliation of GAAP to
adjusted diluted earnings per
share
GAAP diluted earnings per share
from continuing operations $0.24 $0.05 $0.77 $0.71
Adjustments, net of tax
Facility closings,
reorganizations and other
costs 0.04 0.09 0.07 0.13
Debt refinancing and special
dividend costs - - - 0.09
Adjusted diluted earnings per
share from continuing
operations $0.28 $0.14 $0.84 $0.93
Computation of Free Cash Flow
provided by operations
Net cash provided by continuing
operations $143,419 $50,206 $458,723 $220,689
Additions to property, plant and
equipment (65,246) (62,100) (171,008) (165,192)
Free cash flow provided by
operations $78,173 $(11,894) $287,715 $55,497
SOURCE: Dean Foods Company
CONTACT:
Corporate Communications
Marguerite Copel
+1-214-721-1273
or
Investor Relations
Barry Sievert
+1-214-303-3437
both of Dean Foods
Company
Web site: http://www.deanfoods.com
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