Tuesday, 4 May 2004

Dean Foods Company Reports First Quarter 2004 Results

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Tuesday, 4 May 2004

Company Announces First Quarter GAAP Diluted Earnings Per Share of $0.43 First Quarter Adjusted Diluted Earnings Per Share Grows 7% to $0.45 Dean Foods Anticipates 2004 Adjusted Earnings Per Share of $2.21 to $2.28 in Light of Unprecedented Commodity Costs

DALLAS, May 4, 2004 /PRNewswire-FirstCall via COMTEX/ — Dean Foods Company (NYSE: DF)
announced today that it earned $0.43 per diluted share for the quarter ended
March 31, 2004, flat compared with the first quarter of 2003. Net income for
the first quarter increased 10% to $69.2 million, compared with $63.2 million
in the prior year first quarter.

Net sales for the first quarter totaled $2.5 billion, an increase of 14%
over the first quarter of 2003, primarily due to the acquisitions of Horizon
Organic and Ross-Swiss Dairies in 2004 and the acquisitions of Melody Farms
and Kohler Mix Specialties last year; increased selling prices resulting from
higher raw material costs; and growth in strategic brand volumes.

On an adjusted basis (as defined below), diluted earnings per share for
the first quarter totaled $0.45, an increase of 7% compared with adjusted
earnings of $0.42 per share in last year’s first quarter. Adjusted net income
for the first quarter grew 19% to $73.9 million compared with adjusted net
income of $62.2 million in the first quarter of 2003.

“I’m pleased with our results for the first quarter, particularly in light
of the difficult raw material environment we are experiencing,” said Gregg
Engles, chairman and chief executive officer. “The Dairy Group reported
another quarter of solid results, and we recorded strong volume growth in our
Branded Products Group.”

Operating income in the first quarter totaled $152.4 million versus
$157.0 million in the first quarter of 2003. Adjusted first quarter operating
income totaled $160.0 million, an increase of 3% over adjusted operating
income of $155.3 million in the first quarter of 2003.

Operating income margins were 6.22% for the first quarter of 2004,
compared to 7.32% in the first quarter of 2003. Adjusted operating income
margins were 6.52% for the first quarter of 2004, down 72 basis points versus
the first quarter of 2003. The decline in consolidated margins was primarily
due to higher raw milk, butterfat, fuel and other commodity costs and the
impact of the supermarket strikes in California.

Long-term debt at March 31, 2004 was approximately $3.0 billion, including
$181 million due within one year that is reported as a current liability. At
the end of the quarter, approximately $642 million was available for future
borrowings under the company’s senior credit facilities.

Dean Foods successfully raised an additional $400 million of capital in
the form of a new Term Loan C, which closed in April. Proceeds were used to
pay down the company’s revolving credit and securitization facilities, so that
total availability under the company’s credit facilities is now approximately
$1 billion.

During the first quarter, Dean Foods repurchased 150,000 shares of common
stock at an average price of $34.40 per share, for an aggregate purchase price
of $5.2 million. Approximately $109.4 million remains available for spending
under the company’s share repurchase program.

In the first quarter, Dean Foods completed the closure of one Dairy Group
plant in South Gate, Calif. and identified 5 additional Dairy Group plants for
closure, all as part of its strategy to lower costs and rationalize
manufacturing assets. The 5 plants slated for closing are located in Madison,
Wis., San Leandro, Calif., Lansing, Mich., Sulphur Springs, Tex., and
Wilkesboro, N.C. The Madison, San Leandro, Lansing and Wilkesboro plants are
expected to close in the second quarter of 2004, and the Sulphur Springs plant
is expected to close in early 2005. In the first quarter of 2004, Dean Foods
recorded costs of $7.6 million in plant closing charges primarily related to
the South Gate, Madison and San Leandro facilities.

Dean Foods has accelerated its plant rationalization program in light of
the difficult commodity environment, and it will close more plants in 2004
than originally anticipated. The company now estimates that it will close a
total of 8 to 10 facilities this year.


“We are currently facing one of the most challenging commodity
environments we have ever seen,” said Engles. “Inflationary pressures began
to impact our business in the first quarter. However the brunt of record high
commodity costs will affect us in the second quarter, adding to the
inflationary environment we are already experiencing across our various lines
of business.”

During the first quarter of 2004, the Class I Mover averaged $11.79 per
hundredweight, up 16% compared to the first quarter of 2003. It increased to
$13.64 in April, and to $19.65 in May, a new record high price. The $6 per
hundredweight increase, which equals a 44% rise in the Class I Mover during a
one-month period, is also unprecedented. The Class I mover is expected to
increase to even higher levels in June, and other input costs, such as diesel
fuel, resin, soybean oil and casein, are also at record or near-record levels.

“As a result of these unusually high commodity costs, 2004 will be a
challenging year,” added Engles. “We are working diligently to manage through
these commodity cost increases. However, the unprecedented pace of these
increases will put pressure on our earnings in 2004. Our Specialty Foods
Group is not able to pass through increased commodity costs as quickly as our
other segments and, therefore, we expect Specialty Foods to have a
particularly challenging year.

“For the full year, we continue to expect sales of approximately
$10 billion and marketing spending of $210 million,” said Engles. “However,
we now expect to generate adjusted earnings per share in the range of $2.21 to
$2.28 this year, consistent with our long-term guidance of 8-10% despite the
most difficult commodity environment we have ever seen. Where we fall within
this range will be determined by how long these record high raw material
costs, particularly raw milk and butterfat, continue and the timing of their

The company noted that second quarter adjusted earnings are expected to be
in the range of $0.47 to $0.50 per share, due to the impact of unprecedented
high costs of raw milk and other commodities across the business, coupled with
heavy brand marketing spending in the quarter.

“Despite the near-term commodity challenges, our value proposition remains
intact,” continued Engles. “We are committed to our strategy of investing in
our brands for growth, rationalizing our manufacturing assets to lower our
costs, and leveraging our DSD network to fully penetrate the market with our
value added products. We continue to look for attractive acquisition
opportunities, and as always, we remain focused on creating long-term
shareholder value.

“We are highly focused on managing through this difficult commodity
environment, and we are confident that we’ll manage successfully through this
cycle. Our brands are growing, and our brand strategy is on track. We remain
confident in our long-term goal of 8-10% earnings per share growth,” said


In March, Dean Foods acquired the remaining rights and customer
relationships related to the Land O’Lakes brand cream and sour cream products.
Prior to the acquisition, another dairy held limited license rights to
manufacture and sell Land O’Lakes cream, sour cream and whipping cream in
certain channels in the eastern United States. With this acquisition, Dean
Foods now has the exclusive right to manufacture and market all Land O’Lakes
brand dairy products (except for butter and cheese) nationwide.

In April, the company acquired its first dedicated soy processing facility
from Cumberland Dairy. The facility, located in Bridgeton, N.J., will be
dedicated to processing soymilk (and other White Wave soy-based products).
Prior to the acquisition, the facility co-packed Silk soymilk for White Wave.


Dean Foods noted that effective January 1, 2004, the company completed the
reorganization of its former Morningstar operations, resulting in a new
segment reporting structure. Dean Foods now has three reportable operating
segments: the Dairy Group, the Branded Products Group and the Specialty Foods
Group. The segment operating income and operating margins reported below are
calculated in accordance with SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information.”

Dairy Group net sales for the first quarter rose 11% to $1.95 billion,
from $1.77 billion in the first quarter of 2003. The sales increase was
primarily due to the acquisitions of Ross-Swiss Dairies, Kohler Mix
Specialties and Melody Farms, as well as increased selling prices in response
to higher raw milk and butterfat costs. The first quarter average Class I
mover, which is an indicator of the company’s Class I raw milk prices,
averaged $11.79 per hundred-weight in the first quarter of 2004, a 16%
increase versus last year. Class II butterfat costs averaged $1.92 per pound
in the first quarter, an increase of 66% over last year.

Dairy Group segment operating income in the first quarter declined 2% to
$138 million and operating margins declined 90 basis points to 7.08% of sales,
primarily due to the negative impact from higher raw milk and butterfat

The Branded Products Group’s net sales increased 68% in the first quarter
to $262 million compared to the first quarter of 2003, driven primarily by the
acquisition of Horizon Organic and increased volumes across the strategic
brand portfolio.

First quarter volumes for the Branded Products Group segment were up 22%
over the prior year first quarter, assuming that Horizon Organic had been
acquired at the beginning of 2003 and the branded frozen whipped topping
business had been divested at the beginning of 2003.

Additionally, volumes of the company’s strategic brands grew 28% and sales
grew 36% during the first quarter, fueled by a 36% increase in Silk volumes
and 30% growth in Horizon Organic milk volumes. Dean Foods’ strategic brands
include Silk(R) soymilk, Horizon Organic(R) branded products, International
Delight(R) coffee creamers, Hershey’s(R) milks and milkshakes, Land O’Lakes(R)
nationally-distributed products, Marie’s(R) dips and dressings, The Organic
Cow of Vermont(R) organic milk, Rachel’s Organic(TM) organic dairy products
sold in the U.K., and Dean’s(R) dips. The strategic brand portfolio is a
subset of the Branded Products Group and excludes Horizon Organic’s private
label business, White Wave’s cultured soy and tofu products, Folgers(R)
Jakada(R) milk and coffee beverages, and certain non-core brands sold by the
Dean National Brands Group.

First quarter segment operating income for the Branded Products Group
totaled $16.3 million, a 95% rise over last year’s first quarter. Segment
operating margins were 6.2%, an improvement of 88 basis points compared to the
prior year first quarter. Branded Products Group segment operating results
improved primarily due to operating improvements at White Wave and the
contribution of Horizon Organic.

Specialty Foods’ net sales in the first quarter totaled $165 million, a 2%
increase over the 2003 first quarter. Segment operating income was
$19.3 million, a decline of 17%, and segment operating income margins declined
to 11.7%, primarily due to increased commodity costs.


The adjusted earnings, operating income and operating margins contained in
this press release are non-GAAP financial measures that eliminate the net
expense related to plant closings and restructurings. These numbers are
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 the company’s management. Because the
company cannot predict the timing and amount of charges associated with plant
closings and restructurings, management does not consider plant closing or
restructuring costs when evaluating the company’s performance, when making
decisions regarding the allocation of resources, or in determining incentive
compensation for management. Plant closing and restructuring costs are not
recorded 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 numbers may be
different than similar measures used by other companies. A full
reconciliation table between earnings per share for the three-month period
ended March 31, 2004 calculated according to GAAP and on an adjusted basis is
attached. Additionally, the company’s earnings guidance for 2004 excludes any
potential non-recurring or one-time gains and losses and plant closing and
restructuring charges.

For the first quarter of 2004, the adjusted earnings per share, operating
income and operating margins reported above differ from the company’s results
under GAAP by excluding a $7.6 million charge related primarily to the
Madison, South Gate and San Leandro plant closings.

For the first quarter of 2003, the adjusted earnings per share, operating
income and operating margins reported above differ from the company’s results
under GAAP by excluding a $1.7 million gain ($1.0 million net of income tax)
related to the sale of a closed Dairy Group plant in Michigan.


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 “Webcasts”
section of the company site at www.deanfoods.com .


Dean Foods Company is one of the leading food and beverage companies in
the United States. Its Dairy Group division is the largest processor and
distributor of milk and other dairy products in the country, with an extensive
refrigerated direct-store-delivery network. Through its White Wave and
Horizon Organic subsidiaries, Dean Foods Company is also the nation’s leading
manufacturer of soymilk, organic milk and other organic foods. The company’s
Specialty Foods Group is a leading manufacturer of pickles and other specialty
food products. Dean Foods Company and its subsidiaries operate over 120
plants in 36 U.S. states, Spain and the United Kingdom, and employ
approximately 28,000 people.

Some of the statements in this press release are “forward-looking” and are
made pursuant to the safe harbor provision of the Securities Litigation Reform
Act of 1995. These “forward-looking” statements include statements relating
to, among other things, the company’s projected sales, operating income,
marketing expenses, depreciation, amortization, interest expense, capital
expenditures, taxes and earnings per share. 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 during 2004, including targeted
sales, operating income, marketing expenses, depreciation, amortization,
interest expense, capital expenditures, taxes and earnings per share depends
on a variety of economic, competitive and governmental factors, including raw
material costs, 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 primarily 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.

                              (Tables to follow)

                              DEAN FOODS COMPANY
                (Dollars in thousands, except per share data)

                                        GAAP                ADJUSTED [A]
                                 Three Months Ended      Three Months Ended
                                      March 31,               March 31,
                                  2004        2003        2004        2003

    Net sales                  $2,452,151  $2,144,878  $2,452,151  $2,144,878
    Cost of sales               1,839,706   1,573,645   1,839,706   1,573,645

      Gross profit                612,445     571,233     612,445     571,233

    Operating costs and
     expenses                     452,470     415,941     452,470     415,941
    Plant closing and
     restructuring costs
     (gain)                         7,573      (1,690)

      Operating income            152,402     156,982     159,975     155,292

    Interest expense               42,501      46,871      42,501      46,871
    Financing charges on
     preferred securities                       8,395                   8,395
    Earnings from unconsolidated
     affiliates                                  (196)                   (196)
    Other income                   (1,485)       (467)     (1,485)       (467)

      Income before income
       taxes                      111,386     102,379     118,959     100,689
    Income taxes                   42,146      39,170      45,084      38,512

        Net income             $   69,240  $   63,209  $   73,875  $   62,177

    Basic earnings per share:
        Net income             $     0.44  $     0.49  $     0.47  $     0.48

        Basic average common
         shares (000's)           156,105     130,288     156,105     130,288

    Diluted earnings per share:
        Net income             $     0.43  $     0.43  $     0.45  $     0.42

        Diluted average common
         shares (000's)           162,730     159,301     162,730     159,301

    [A]  Adjusted results differ from results reported under GAAP by excluding
         income and expense related to plant closings and restructurings.
         More information about these items is included in the earnings
         release under the heading "Comparison of Adjusted Information to GAAP

                Earnings per Share Summary and Reconciliation

                                                       Three Months Ended
                                                            March 31,
                                                     2004              2003
    GAAP diluted earnings per share                $  0.43           $  0.43

       Plant closing and restructuring costs
        (gain)                                        0.02             (0.01)

    Adjusted diluted earnings per share            $  0.45           $  0.42

                              DEAN FOODS COMPANY

                             Segment Information
                            (Dollars in thousands)

                                                     Three Months Ended
                                                           March 31,
                                                    2004              2003
      Dairy Group                               $1,953,318        $1,766,358
      Branded Products Group                       262,389           156,559
      Specialty Foods Group                        165,483           162,938
      Corporate / Other                             70,961            59,023
        Total                                   $2,452,151        $2,144,878

    Segment operating income (loss)
      Dairy Group                               $  138,306        $  141,024
      Branded Products Group                        16,295             8,337
      Specialty Foods Group                         19,306            23,191
      Corporate / Other                            (13,932)          (17,260)
        Subtotal                                   159,975           155,292
    Plant closing costs (gain)                       7,573            (1,690)
        Total operating income                  $  152,402        $  156,982

                   Restatement of 2003 Segment Information
                            (Dollars in Thousands)

                                   Three Months Ended                  Year
    Revenue             Mar 31      Jun 30     Sept 30      Dec 31     2003

    Dairy Group     $1,766,358  $1,814,240  $1,907,393  $2,054,111 $7,542,102
    Branded Products
     Group             156,559     169,363     174,985     212,518    713,425
    Specialty Foods
     Group             162,938     175,676     165,748     179,845    684,207
    Corporate / Other   59,023      63,293      58,722      63,844    244,882
      Total         $2,144,878  $2,222,572  $2,306,848  $2,510,318 $9,184,616

    Segment operating
     income (loss)
    Dairy Group      $ 141,024   $ 173,079   $ 165,062   $ 161,856  $ 641,021
    Branded Products
     Group               8,337       3,263      (1,120)     23,095     33,575
    Specialty Foods
     Group              23,191      26,584      26,462      25,055    101,292
    Corporate / Other  (17,260)    (15,435)    (13,297)    (20,843)   (66,835)
      Subtotal         155,292     187,491     177,107     189,163    709,053
    Plant closing
     costs (gain)       (1,690)      3,025       2,118       8,334     11,787
    Other operating
     income                                    (65,892)     (2,827)   (68,719)
      Total operating
       income        $ 156,982   $ 184,466   $ 240,881   $ 183,656  $ 765,985

                              DEAN FOODS COMPANY

                           Condensed Balance Sheet
                            (Dollars in Thousands)

                                                  March 31,       December 31,
    ASSETS                                          2004              2003

    Cash and cash equivalents                  $    27,124       $    47,143
    Other current assets                         1,454,107         1,353,738
      Total current assets                       1,481,231         1,400,881

    Property, plant & equipment                  1,817,986         1,773,555

    Intangibles & other assets                   4,114,945         3,818,100

        Total Assets                           $ 7,414,162       $ 6,992,536


    Total current liabilities                  $ 1,197,535       $ 1,170,393

    Long-term debt                               2,858,687         2,611,356

    Other long-term liabilities                    703,992           667,974

    Stockholders' equity:
      Common stock                                   1,571             1,550
      Additional paid-in capital                 1,542,486         1,498,025
      Retained earnings                          1,143,498         1,074,258
      Other comprehensive income                   (33,607)          (31,020)
         Total stockholders' equity              2,653,948         2,542,813

        Total Liabilities and
         Stockholders' Equity                  $ 7,414,162       $ 6,992,536

                              DEAN FOODS COMPANY

                      Condensed Statement of Cash Flows
                            (Dollars in Thousands)

                                                  Three Months Ended March 31,
    Operating Activities                             2004              2003
      Net income                                  $ 69,240          $ 63,209
      Depreciation and amortization                 54,802            46,666
      Deferred income taxes                         16,704            24,099
      Tax savings on equity compensation            11,763            11,340
      Changes in current assets and
       liabilities                                 (65,112)          (80,473)
      Other                                          3,130              (386)
          Net cash provided by operations           90,527            64,455

    Investing Activities
      Net additions to property, plant
       and equipment                               (71,306)          (53,713)
      Cash outflows for acquisitions              (305,446)             (476)
      Proceeds from disposal of fixed assets         3,221             4,496
          Net cash used in investing
           activities                             (373,531)          (49,693)

    Financing Activities
      Proceeds from the issuance of debt           273,528           350,094
      Repayment of debt                            (43,162)         (286,581)
      Issuance of common stock, net of
       expenses                                     37,882            45,174
      Redemption of common stock                    (5,163)         (142,565)
      Other                                           (100)
          Net cash provided by (used in)
           financing activities                    262,985           (33,878)

    Decrease in cash and cash equivalents          (20,019)          (19,116)
    Beginning cash balance                          47,143            45,896

    Ending cash balance                           $ 27,124          $ 26,780
                 Contact:    Cory Olson
                 Senior Vice President and Treasurer
                 (214) 303-3645

                 P.I. Aquino
                 Assistant Treasurer
                 (214) 303-3437

SOURCE Dean Foods Company

Cory Olson, Senior Vice President and Treasurer,
+1-214-303-3645, or P.I. Aquino, Assistant Treasurer, +1-214-303-3437, both of
Dean Foods Company

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