Company Reports Second Quarter Diluted EPS of $0.47;
Unprecedented Rise in Raw Material Costs Impacts Second Quarter Earnings;
Dean Foods Reiterates 8-10% Adjusted Diluted EPS Growth Expectations for 2004
DALLAS, Aug. 4 /PRNewswire-FirstCall/ — Dean Foods Company (NYSE: DF)
announced today that it earned $0.47 per diluted share for the quarter ended
June 30, 2004, a decline of 13% compared with $0.54 per diluted share in the
second quarter of 2003. Net income in the second quarter declined 8% to
$77.1 million, compared with $83.8 million in the second quarter of 2003.
Net sales for the second quarter totaled $2.8 billion, an increase of 26%
over the second quarter of 2003, due to increased selling prices resulting
from the pass through of increases in raw milk costs. The Class I mover,
which is an indicator of the price the company pays for raw milk, increased
87% in the second quarter compared with last year’s second quarter, and Class
II butterfat prices increased 105% in the same period. Solid growth in the
Branded Products Group segment and the acquisitions of Horizon Organic and
Ross-Swiss Dairies in 2004 and Kohler Mix Specialties in 2003 also contributed
to revenue growth.
On an adjusted basis (as defined below), diluted earnings per share for
the second quarter declined 16%, and net income for the second quarter was
“As we expected, this year’s second quarter was a difficult one for Dean
Foods,” said Gregg Engles, chairman and chief executive officer. “During the
quarter, dairy commodities rose to historic highs, as did many other
agricultural inputs and energy prices. We did a reasonably good job of
passing these cost increases along, particularly in our dairy business.
Nonetheless, our adjusted net income was down 10% to last year and at the low
end of our expectations. Increased spending against our brands also impacted
our results compared to last year.
“The Dairy Group turned in a respectable performance given the commodity
environment. Our Branded Products Group continued to deliver solid volume,
sales and profitability growth, even while increasing investment in marketing
and promoting our brands. Our Specialty Foods Group continues to face
significant cost pressure and competitive challenges this year. We expect
these operational and competitive challenges will continue for the Specialty
Foods Group through the second half of the year,” Engles said.
Operating income in the second quarter totaled $169.0 million, an 8%
decline versus $184.5 million in the second quarter of 2003. Adjusted second
quarter operating income of $169.0 million declined 10% compared to adjusted
operating income of $187.5 million in the second quarter of 2003.
Operating income margins were 6.02% for the second quarter of 2004, down
228 basis points compared to 8.30% in the second quarter of 2003. On an
adjusted basis, operating income margins were down 242 basis points compared
to 8.44% in the second quarter of 2003.
The decline in consolidated operating income and margins was due to higher
raw milk, butterfat, fuel and other commodity costs, as well as increased
brand spending compared to the prior year.
Long-term debt at June 30, 2004 was approximately $3.1 billion, including
$300 million due within one year that is reported as a current liability. At
the end of the quarter, approximately $711 million was available for future
borrowings under the company’s senior credit facilities.
OUTLOOK FOR THE BALANCE OF 2004
“The raw milk environment is showing signs of returning to more normal
levels in the third quarter,” said Engles. “However, market uncertainty
remains among both consumers and customers caused by the rapid run-up and pull
back in milk prices over the last four months. We also face continuing cost
pressures from other inputs, including agricultural commodities, packaging and
fuel. Nevertheless, we continue to expect to grow adjusted diluted earnings
per share in the range of 8 to 10%, to $2.21 to $2.26 per share, in line with
our long-term growth goals.”
The company reiterated its quarterly adjusted earnings per share guidance
of $0.54 to $0.57 per diluted share in the third quarter and between $0.72 and
$0.76 per diluted share in the fourth quarter.
SECOND QUARTER SEGMENT RESULTS
Dairy Group net sales for the second quarter rose 25% to $2.3 billion,
from $1.8 billion in the second quarter of 2003. The sales increase was due
to previously-announced acquisitions and increased selling prices in response
to higher raw milk and butterfat costs. The second quarter Class I mover
averaged $18.14 per hundred-weight in the second quarter of 2004, an 87%
increase versus last year. Class II butterfat costs averaged $2.38 per pound
in the second quarter, an increase of 105% over last year.
Dairy Group segment operating income in the second quarter declined
$18.7 million to $154.4 million and operating margins declined 273 basis
points to 6.81% of sales, due to the negative impact of higher raw milk and
butterfat prices and the sale of the pre-whipped topping business in the third
quarter of last year. Additionally, higher fuel costs impacted the Dairy
Group’s results by approximately $3.0 million in the second quarter.
The Branded Products Group’s net sales increased 70% in the second quarter
to $288.5 million, driven by increased volumes across the strategic brand
portfolio and the acquisition of Horizon Organic. Volumes of the company’s
strategic brands grew 16% and sales grew 29% during the second quarter, fueled
by the performance of the Silk, Horizon Organic and International Delight
brands. Dean Foods’ strategic brands include Silk(R) and Sun Soy(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 and White Wave’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.
Second quarter volumes for the Branded Products Group segment in total
were up 14% over last year, assuming Horizon Organic and the Land O’Lakes
sublicense were owned in the comparable period in 2003. Sales dollars for the
Branded Products Group segment in total were up 29% over last year.
Second quarter operating income for the Branded Products Group totaled
$17.3 million, up from $3.3 million in last year’s second quarter. Segment
operating margins were 5.98%, an improvement of 405 basis points compared to
the prior year. Despite increased brand spending of $6 million in the second
quarter, Branded Products Group segment operating results improved due to
margin improvement across the branded portfolio, the contribution of Horizon
Organic and the elimination of the White Wave management incentive accrual.
Specialty Foods’ net sales in the second quarter totaled $174.2 million, a
0.9% decline compared with the second quarter of 2003. Segment operating
income was $19.8 million, a decline of $6.8 million compared to last year, and
segment operating income margins declined 374 basis points to 11.4%, due to
high commodity, packaging and transportation costs, as well as lower volumes
in the segment’s nutritional drinks business.
RESULTS FOR SIX MONTHS ENDED JUNE 30, 2004
The company’s net sales increased 20% to $5.3 billion for the six months
ended June 30, 2004, compared with $4.4 billion during the first six months of
2003. The increase was due to higher raw material costs that were passed on
to customers in the form of higher selling prices, growth in the Branded
Products Group and the acquisitions of Horizon Organic, Ross-Swiss Dairies,
Melody Farms and Kohler Mix Specialties. Net income for the first half of the
year totaled $146.3 million, compared with $147.0 million in 2003. Diluted
earnings per share for the six months ended June 30, 2004 totaled $0.90,
compared with $0.97 in the first six months of 2003.
On an adjusted basis (as defined below), net income for the six months
totaled $151.0 million, an increase of 2% over $147.8 million last year.
Adjusted diluted earnings per share for the first six months of 2004 totaled
$0.93 compared with $0.98 in the first six months of 2003.
The company reported operating income for the period ended June 30, 2004
of $321.4 million versus $341.4 million in 2003. Adjusted operating income
for the first six months of 2004 totaled $329.0 million, a decline of 4%
versus $342.8 million last year. Adjusted operating income margins for the
six months were 6.26%, a decline of 159 basis points versus the prior year’s
first six months.
COMPARISON OF ADJUSTED INFORMATION TO GAAP INFORMATION
The adjusted earnings, operating income and operating margin information
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 and six-
month periods ended June 30, 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 quarter ended June 30, 2004, the adjusted results reported above
do not differ from the company’s results under GAAP. The company recorded a
net $11,000 charge ($7,000 net of income tax) related to plant closings,
including closings in Madison, South Gate, and Wilkesboro, and almost entirely
offset by a gain on the sale of a plant closed in Hawaii in 2003.
For the quarter ended June 30, 2003, the adjusted results reported above
differ from the company’s results under GAAP by excluding a $3.0 million
charge ($1.9 million net of income tax) largely related to closing an ice
cream plant in Hawaii.
For the six months ended June 30, 2004, the adjusted results reported
above differ from the company’s results under GAAP by excluding a net
$7.6 million charge ($4.6 million net of income tax) mostly related to plant
closings in Madison, South Gate, San Leandro, and Wilkesboro, and partly
offset by a gain on the sale of a plant closed in Hawaii in 2003.
For the six months ended June 30, 2003 the adjusted results reported above
differ from the company’s results reported under GAAP by excluding several
restructuring charges totaling $1.3 million ($0.8 million net of income tax),
including closing an ice cream plant in Hawaii, partly offset by a gain on the
sale of a previously-closed plant in Michigan.
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 “Webcasts”
section of the company site at http://www.deanfoods.com .
ABOUT DEAN FOODS
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 branded 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
approximately 120 plants in 36 U.S. states, Spain and the United Kingdom, and
employ approximately 29,000 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, net
income 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, net income 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 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 June 30, June 30, 2004 2003 2004 2003 Net sales $2,806,564 $2,222,572 $2,806,564 $2,222,572 Cost of sales 2,168,366 1,621,419 2,168,366 1,621,419 Gross profit 638,198 601,153 638,198 601,153 Operating costs and expenses 469,174 413,662 469,174 413,662 Plant closing and restructuring costs 11 3,025 Operating income 169,013 184,466 169,024 187,491 Interest expense 44,079 44,341 44,079 44,341 Financing charges on preferred securities 5,769 5,769 Other income (76) (287) (76) (287) Income before income taxes 125,010 134,643 125,021 137,668 Income taxes 47,937 50,854 47,941 52,020 Net income $77,073 $83,789 $77,080 $85,648 Basic earnings per share: Net income $0.49 $0.60 $0.49 $0.61 Basic average common shares (000's) 157,331 139,477 157,331 139,477 Diluted earnings per share: Net income $0.47 $0.54 $0.47 $0.56 Diluted average common shares (000's) 163,634 160,758 163,634 160,758 [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 Information." DEAN FOODS COMPANY (Dollars in thousands, except per share data) GAAP ADJUSTED [B] Six Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 Net sales $5,258,715 $4,367,450 $5,258,715 $4,367,450 Cost of sales 4,008,072 3,195,064 4,008,072 3,195,064 Gross profit 1,250,643 1,172,386 1,250,643 1,172,386 Operating costs and expenses 921,644 829,603 921,644 829,603 Plant closing and restructuring costs 7,584 1,335 Operating income 321,415 341,448 328,999 342,783 Interest expense 86,580 91,212 86,580 91,212 Financing charges on preferred securities 14,164 14,164 Other income (1,561) (950) (1,561) (950) Income before income taxes 236,396 237,022 243,980 238,357 Income taxes 90,083 90,024 93,025 90,532 Net income $146,313 $146,998 $150,955 $147,825 Basic earnings per share: Net income $0.93 $1.09 $0.96 $1.10 Basic average common shares (000's) 156,718 134,908 156,718 134,908 Diluted earnings per share: Net income $0.90 $0.97 $0.93 $0.98 Diluted average common shares (000's) 163,149 160,073 163,149 160,073 [B] 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 Information." DEAN FOODS COMPANY Earnings per Share Summary and Reconciliation Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 GAAP diluted earnings per share $0.47 $0.54 $0.90 $0.97 Adjustments: Plant closing and restructuring costs 0.02 0.03 0.01 Adjusted diluted earnings per share $0.47 $0.56 $0.93 $0.98 Segment Information (Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2004 2003 2004 2003 Revenue Dairy Group $2,265,849 $1,814,240 $4,219,167 $3,580,598 Branded Products Group 288,520 169,363 550,909 325,922 Specialty Foods Group 174,168 175,676 339,651 338,614 Corporate / Other 78,027 63,293 148,988 122,316 Total $2,806,564 $2,222,572 $5,258,715 $4,367,450 Segment operating income (loss) Dairy Group $154,410 $173,079 $292,716 $314,103 Branded Products Group 17,263 3,263 33,558 11,600 Specialty Foods Group 19,832 26,584 39,138 49,775 Corporate / Other (22,481) (15,435) (36,413) (32,695) Subtotal 169,024 187,491 328,999 342,783 Plant closing costs (11) (3,025) (7,584) (1,335) Total operating income $169,013 $184,466 $321,415 $341,448 DEAN FOODS COMPANY Condensed Balance Sheet (Dollars in Thousands) June 30, December 31, ASSETS 2004 2003 Cash and cash equivalents $29,617 $47,143 Other current assets 1,575,865 1,353,738 Total current assets 1,605,482 1,400,881 Property, plant & equipment 1,875,429 1,773,555 Intangibles & other assets 4,151,712 3,818,100 Total Assets $7,632,623 $6,992,536 LIABILITIES AND STOCKHOLDERS' EQUITY Total current liabilities $1,318,996 $1,170,393 Long-term debt 2,818,939 2,611,356 Other long-term liabilities 715,667 667,974 Stockholders' equity: Common stock 1,577 1,550 Additional paid-in capital 1,581,241 1,498,025 Retained earnings 1,220,572 1,074,258 Other comprehensive income (24,369) (31,020) Total stockholders' equity 2,779,021 2,542,813 Total Liabilities and Stockholders' Equity $7,632,623 $6,992,536 DEAN FOODS COMPANY Condensed Statement of Cash Flows (Dollars in Thousands) Six Months Ended June 30, Operating Activities 2004 2003 Net income $146,313 $146,998 Depreciation and amortization 112,034 94,120 Deferred income taxes 37,101 52,755 Tax savings on equity compensation 15,298 15,771 Changes in current assets and liabilities (187,640) (88,837) Other 1,695 (3,838) Net cash provided by operations 124,801 216,969 Investing Activities Net additions to property, plant and equipment (164,021) (130,580) Cash outflows for acquisitions (351,289) (52,048) Proceeds from disposal of fixed assets 7,493 5,170 Net cash used in investing activities (507,817) (177,458) Financing Activities Proceeds from the issuance of debt 478,688 131,049 Repayment of debt (159,369) (107,745) Issuance of common stock, net of expenses 52,474 64,277 Redemption of common stock (5,163) (142,565) Other (1,140) (2,420) Net cash provided by (used in) financing activities 365,490 (57,404) Decrease in cash and cash equivalents (17,526) (17,893) Beginning cash balance 47,143 45,896 Ending cash balance $29,617 $28,003 Contact: Cory Olson Senior Vice President and Treasurer (214) 303-3645 P.I. Aquino Assistant Treasurer (214) 303-3437
SOURCE Dean Foods Company
CONTACT: 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