Most Challenging Quarter in Company’s History
DALLAS, Nov. 8 /PRNewswire-FirstCall/ — Dean Foods Company (NYSE: DF)
today announced that the Company earned $0.05 per diluted share from
continuing operations for the quarter ended September 30, 2007, compared with
$0.54 per diluted share from continuing operations in the third quarter of
2006. Net income from continuing operations for the third quarter totaled
$6.5 million, compared with $74.5 million in the prior year’s third quarter.
On an adjusted basis (as defined below), diluted earnings per share were
$0.14, compared to $0.56 in the prior year’s third quarter. Adjusted net
income for the third quarter was $18.7 million, compared to adjusted net
income of $77.9 million in the third quarter of 2006. The decrease in
adjusted net income and earnings per share is primarily related to a decline
in operating results in the quarter and the increase in interest expense as a
result of the recapitalization connected to the special cash dividend of $15
per share that was paid in early April. Interest expense in the quarter
totaled $89.7 million, compared to $48.0 million in the third quarter of 2006.
Total debt, net of $45 million in cash on hand, at September 30, 2007, was
approximately $5.3 billion.
Summary of Dean Foods Third Quarter 2007 Segment and Operating Results
% Growth Rate
Dairy Group:
Fluid Milk Volume -3.4%
Operating Income -21.0%
WhiteWave Foods:
Net Sales 9.0%
Operating Income -37.0%
Consolidated Adjusted Operating Income -29.3%
“In the third quarter, we were faced with the most difficult operating
environment in our history,” said Gregg Engles, Chairman and Chief Executive
Officer. “Raw milk prices rose rapidly to record highs and we were challenged
to increase our pricing fast enough to keep pace. Additionally, as retail
prices spiked, rising an average of seventy-five cents per gallon over the
course of this year, volumes softened and our sales mix skewed more heavily
toward private label milk. At the same time, we continued to work to overcome
the negative effects of the increase in the cost of shrink, lower offsets to
cost of goods sold from excess cream sales, and continued increased investment
behind the Horizon Organic brand.”
Net sales for the third quarter totaled $3.1 billion, an increase of 24%
from net sales for the third quarter of 2006, due to the pass-through of
higher commodity dairy costs and increased sales at WhiteWave Foods.
Consolidated operating income in the third quarter totaled $103.3 million,
a decrease of 39% from $168.7 million in the third quarter of 2006. Adjusted
third quarter consolidated operating income totaled $123.1 million, a decrease
of 29% from $174.2 million in the third quarter of 2006.
DAIRY GROUP
Dairy Group net sales for the third quarter were $2.8 billion, a 26%
increase from $2.2 billion in net sales for the third quarter of 2006. The
sales increase was due primarily to the pass-through of higher overall dairy
commodity costs to customers. The third quarter average Class I mover, which
is an indicator of the Company’s raw milk costs, averaged $21.53 per
hundred-weight, a 95% increase from the same period in 2006 and 32% higher
than the second quarter of 2007. Class II butterfat prices averaged $1.58 per
pound in the third quarter, 20% higher than the third quarter of 2006.
Dairy Group segment operating income in the third quarter was $137.3
million, compared to $173.7 million in the third quarter of 2006.
WHITEWAVE FOODS
WhiteWave Foods segment reported third quarter net sales of $335.8
million, 9% higher than third quarter 2006 net sales of $308.4 million. Sales
growth was strong across the branded portfolio with net sales of Horizon
Organic(R) milk increasing over 20% due to strong volume performance driven by
increased promotional activity and lower average prices. International
Delight(R) sales increased in the low double digits and Land O’Lakes(R) sales
grew in the mid-teens over the same period last year, driven by high-single
digit volume growth and commodity based price increases. Sales of Silk(R)
increased in the mid-single digits over the third quarter of 2006.
Segment operating income in the third quarter for WhiteWave Foods was
$22.3 million, compared to $35.4 million in the third quarter of 2006.
Segment operating margins were 6.6%, compared to 11.5% in the third quarter of
2006, due to the lower contribution from Horizon Organic related to increased
brand spending and lower overall gross profit margins.
CORPORATE EXPENSE
Corporate and other expenses totaled $36.5 million, compared to $34.9
million in the third quarter of 2006. The increase was largely driven by
increased investments in support of the Company’s strategic initiatives.
CASH FLOW
Cash flow from continuing operations through the first nine months of 2007
totaled $220.7 million, compared to $427.0 million in the first nine months of
2006. The decline in cash flow from operations is due primarily to lower
operating results, higher year over year interest expense, and the increase in
working capital requirements.
Capital expenditures through the first three quarters of 2007 totaled
$165.2 million, compared to $174.9 million in capital expenditures in the
first nine months of 2006.
FORWARD OUTLOOK
“Looking ahead to the fourth quarter for the Dairy Group, we expect record
high raw milk prices will continue to pressure results. Milk cost
stabilization should help in terms of price realization; but, other costs tied
to milk costs such as shrink, lower cost of goods sold offsets from excess
cream sales, and the potential for continued unfavorable mix shift away from
our regional brands will likely continue to challenge earnings,” said Jack
Callahan, Chief Financial Officer. “At WhiteWave, we will continue to invest
to protect the Horizon Organic brand from aggressive competition through this
period of industry oversupply, which will negatively affect WhiteWave
profitability. Therefore, we expect fourth quarter adjusted earnings to be
approximately $0.30 per share.
Looking into 2008, the dairy commodity price and organic milk oversupply
situations remain sufficiently unsettled that we believe it is premature today
to set out expectations for the full year. Entering 2008, pricing realization
should begin to improve if the Class I price moderates from current levels, as
we expect. However, the commodity cost comparison to early 2007 will continue
to be a meaningful drag on performance as current forecasts suggest a range
for the first quarter of $18-$20 per hundredweight compared to only $13.74 in
the first quarter of 2007. At WhiteWave, we anticipate that the organic milk
oversupply will persist into 2008 and continue to limit WhiteWave profit
growth. With the tough cost comparisons on commodity milk and the continued
effects of the organic milk surplus, we anticipate overall operating profits
in the first quarter will continue to be below previous year levels,
consistent with the trend since the second quarter of 2007. Additionally, the
higher interest expense under our new capital structure will further
negatively impact first quarter earnings by approximately $0.16 per share.
Looking beyond the first quarter, it’s clear that commodity costs will be
the key driver of our performance. While the Class I mover is showing signs
of moderation, there is a wide range of estimates as to the timing and extent
of any price declines. If dairy commodity prices remain high, 2008 could be
quite difficult as we would continue to face negative cost overlaps until at
least mid-year. Similarly, we expect the oversupply situation in the organic
milk market to persist well into 2008 and it is unclear exactly when supply
and demand will come into better balance. As we are committed to defending
the Horizon brand through this period of oversupply, we expect WhiteWave
results to be impacted for as long as the supply imbalance persists.
Balancing all of the possible outcomes for 2008, right now, we are
expecting a difficult first quarter, followed by sequentially improving
results as we move through the year. We will provide more perspective on 2008
when we report the fourth quarter after we complete our planning activities
and the outlook for the 2008 commodity environment becomes a bit clearer.”
TAX TREATMENT OF $15 SPECIAL CASH DIVIDEND
With respect to the distribution, or “special dividend” of $15 per share
paid to shareholders of record as of March 27th, the Company currently
estimates that approximately 45% of the distribution will be considered a
taxable dividend in accordance with U.S. Federal income tax rules, and the
remaining 55% will be considered a non-dividend distribution. This estimate
includes assumptions regarding the Company’s financial performance for the
remainder of 2007, and is therefore subject to further refinement once full
year performance has been reported. Shareholders are encouraged to contact
their tax and financial advisors regarding the implications and appropriate
tax treatment of this distribution.
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
Net sales for the nine months ended September 30, 2007 totaled $8.6
billion, an increase of 14% from net sales for the same period of last year,
due to the passthrough of higher dairy commodity costs and increased sales at
WhiteWave Foods. Net income from continuing operations for the first nine
months of the year totaled $97.9 million, compared with $204.0 million in the
first nine months of 2006. Diluted earnings per share from continuing
operations for the nine months ended September 30, 2007 totaled $0.71,
compared to $1.45 for the first nine months of 2006.
On an adjusted basis (as defined below), net income from continuing
operations for the nine months totaled $127.4 million, compared to $211.8
million in the same period of 2006. Adjusted diluted earnings per share from
continuing operations for the first nine months of 2007 totaled $0.93,
compared to $1.51 in the first nine months of 2006.
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, 2007 calculated
according to GAAP and on an adjusted basis is attached.
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, reorganization, and other nonrecurring charges:
-- a $19.8 million charge ($11.8 million net of income tax) related to the
realignment of our Dairy Group's finance and accounting organization,
the Dairy Group's management realignment, workforce reduction
activities in the Dairy Group's operations, and previously announced
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 quarter ended September 30, 2006, the adjusted results reported
above differ from the Company’s results under GAAP by excluding the following
facility closing and reorganization charges:
-- a $5.5 million charge ($3.4 million net of income tax) charge related
to the Madison, WI warehouse closing, ice cream production facility
consolidation in the East Region, and other announced facility closings
and reorganizations.
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 our Dairy Group's finance and accounting organization,
the Dairy Group's management realignment, workforce reduction
activities in the Dairy Group's operations, and previously announced
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, including the write-off of
finance costs resulting from the completion of our new senior credit
facility.
For the nine months ended September 30, 2006, the adjusted results
reported above differ from the Company’s results under GAAP by excluding the
following facility closing and reorganization charges:
-- a $12.8 million charge ($7.8 million net of income tax) related to the
Madison, WI warehouse closing, ice cream production facility
consolidation in the East Region, and other announced facility closings
and reorganizations.
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 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 products
sold under more than 50 familiar local and regional brands and a wide array of
private labels. The Company’s WhiteWave Foods subsidiary markets and sells a
variety of well-known dairy and dairy-related products, such as Silk(R)
soymilk, Horizon Organic(R) milk and other dairy products, International
Delight(R) coffee creamers, and Land O’Lakes(R) creamers and other fluid dairy
products. WhiteWave Foods’ Rachel’s Organic(R) brand is the largest organic
milk brand and third largest organic yogurt brand in the United Kingdom.
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 Securities Litigation Reform
Act of 1995. These “forward-looking” statements include statements relating
to, among other things, 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, 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: Investors:
Barry Sievert
Investor Relations
(214) 303-3437
Media:
Marguerite Copel
Corporate Communications
(214) 721-1273
DEAN FOODS COMPANY
Condensed Consolidated Income Statements
(dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
Net sales $3,116,796 $2,517,792 $8,590,190 $7,504,717
Cost of sales 2,457,473 1,823,786 6,555,543 5,475,518
Gross profit 659,323 694,006 2,034,647 2,029,199
Operating costs and
expenses 536,201 519,789 1,594,160 1,538,244
Facility closings,
reorganizations and
other costs 19,816 5,471 29,391 12,823
Operating income 103,306 168,746 411,096 478,132
Interest expense 89,657 48,031 230,839 144,335
Debt refinancing and
special dividend costs 750 - 19,195 -
Other (income) expense (138) (60) (192) (46)
Income from continuing
operations before
income taxes 13,037 120,775 161,254 333,843
Income taxes 6,520 46,277 63,357 129,856
Income from continuing
operations 6,517 74,498 97,897 203,987
Income (loss) from
discontinued operations,
net of tax (35) (3,705) 821 (51,534)
Net income $6,482 $70,793 $98,718 $152,453
Basic earnings per share:
Income from continuing
operations $0.05 $0.56 $0.75 $1.51
Income (loss) from
discontinued
operations - (0.03) 0.01 (0.38)
Net income $0.05 $0.53 $0.76 $1.13
Basic average common
shares (000's) 130,671 133,739 129,866 134,644
Diluted earnings per
share:
Income from continuing
operations $0.05 $0.54 $0.71 $1.45
Income (loss) from
discontinued
operations - (0.03) 0.01 (0.36)
Net income $0.05 $0.51 $0.72 $1.09
Diluted average common
shares (000's) 137,669 139,160 137,068 140,501
DEAN FOODS COMPANY
Segment Information
(dollars in thousands)
Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
Net sales:
Dairy Group $2,780,948 $2,209,411 $7,606,088 $6,593,129
WhiteWave Foods
Company 335,848 308,381 984,102 911,588
Total $3,116,796 $2,517,792 $8,590,190 $7,504,717
Segment operating
income (loss):
Dairy Group $137,317 $173,748 $473,625 $511,547
WhiteWave Foods
Company 22,288 35,389 81,786 86,891
Corporate/Other (36,483) (34,920) (114,924) (107,483)
Subtotal 123,122 174,217 440,487 490,955
Facility closings,
reorganizations and
other costs (19,816) (5,471) (29,391) (12,823)
Total operating
income $103,306 $168,746 $411,096 $478,132
DEAN FOODS COMPANY
Condensed Consolidated Balance Sheets
(dollars in thousands)
September 30, December 31,
ASSETS 2007 2006
Cash and cash equivalents $45,006 $31,140
Other current assets 1,598,621 1,348,150
Total current assets 1,643,627 1,379,290
Property, plant & equipment 1,788,190 1,786,907
Intangibles & other assets 3,709,157 3,583,996
Assets of discontinued operations - 19,980
Total Assets $7,140,974 $6,770,173
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities, excluding
debt $962,598 $852,898
Total long-term debt, including
current portion 5,366,106 3,355,851
Other long-term liabilities 801,451 743,234
Liabilities of discontinued
operations - 8,791
Stockholders' equity:
Common stock 1,309 1,284
Additional paid-in capital 38,396 624,475
Retained earnings 34,898 1,229,427
Other comprehensive income (loss) (63,784) (45,787)
Total stockholders' equity 10,819 1,809,399
Total Liabilities and Stockholders'
Equity $7,140,974 $6,770,173
DEAN FOODS COMPANY
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
Nine months ended September 30,
Operating Activities 2007 2006
Net income $98,718 $152,453
(Income) loss from discontinued
operations (821) 51,534
Depreciation and amortization 174,185 169,029
Deferred income taxes 4,897 61,802
Share-based compensation 27,188 28,554
Write-off of deferred financing
costs 13,545 -
Changes in current assets and
liabilities (107,447) (43,307)
Other 10,424 6,887
Net cash provided by continuing
operations 220,689 426,952
Net cash used in discontinued
operations - (900)
Net cash provided by operating
activities 220,689 426,052
Investing Activities
Additions to property, plant and
equipment (165,192) (174,913)
Cash outflows for acquisitions (131,689) (16,819)
Proceeds from divestitures 12,169 96,280
Proceeds from sale of fixed assets 11,831 5,619
Net cash used in continuing
operations (272,881) (89,833)
Net cash used in discontinued
operations - (14,696)
Net cash used in investing
activities (272,881) (104,529)
Financing Activities
Proceeds from the issuance of debt 2,337,700 498,020
Repayment of debt (339,904) (729,381)
Payment of deferred financing costs (31,281) (6,889)
Issuance of common stock, net 27,752 28,049
Payment of dividend (1,942,738) -
Repurchase of common stock - (135,679)
Tax savings on share-based
compensation 14,529 31,211
Net cash provided (used) by
continuing operations 66,058 (314,669)
Net cash provided by discontinued
operations - 11,760
Net cash provided (used) by
financing activities 66,058 (302,909)
Increase in cash and cash
equivalents 13,866 18,614
Beginning cash balance 31,140 24,456
Ending cash balance $45,006 $43,070
Computation of Free Cash Flow Provided by Operations
(dollars in thousands)
Nine months ended September 30,
2007 2006
Net cash provided by continuing
operations $220,689 $426,952
Additions to property, plant and
equipment (165,192) (174,913)
Free cash flow provided by
operations $55,497 $252,039
DEAN FOODS COMPANY
Reconciliation of Non-GAAP Financial Measures
(dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
Reconciliation of GAAP to
adjusted operating income
GAAP operating income from
continuing operations $103,306 $168,746 $411,096 $478,132
Adjustment:
Facility closings,
reorganizations and other
costs 19,816 5,471 29,391 12,823
Adjusted operating income $123,122 $174,217 $440,487 $490,955
Reconciliation of GAAP to
adjusted net income
GAAP net income from continuing
operations $6,517 $74,498 $97,897 $203,987
Adjustments, net of tax:
Facility closings,
reorganizations and other
costs 11,814 3,374 17,844 7,835
Debt refinancing and special
dividend costs 409 - 11,653 -
Adjusted net income $18,740 $77,872 $127,394 $211,822
Reconciliation of GAAP to
adjusted diluted earnings
per share
GAAP diluted earnings per share
from continuing operations $0.05 $0.54 $0.71 $1.45
Adjustments, net of tax:
Facility closings,
reorganizations and other
costs 0.09 0.02 0.13 0.06
Debt refinancing and special
dividend costs - - 0.09 -
Adjusted diluted earnings per
share $0.14 $0.56 $0.93 $1.51
SOURCE Dean Foods Company
CONTACT: investors, Barry Sievert, Investor Relations, +1-214-303-3437,
or media, Marguerite Copel, Corporate Communications, +1-214-721-1273, both of
Dean Foods Company
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