Tuesday, 10 May 2011

Dean Foods Reports First Quarter 2011 Results

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Tuesday, 10 May 2011

  • First Quarter Diluted Earnings per Share of $0.14; Adjusted Diluted Earnings per Share of $0.14
  • Continued Strong Growth at WhiteWave-Alpro Results in 8% Segment Operating Income Growth
  • Fresh Dairy Direct-Morningstar Continues to Face Challenges, But Business Trends Improving
  • Second Quarter Guidance of $0.15-$0.20 per Adjusted Diluted Share
  • Full Year Guidance Increased to $0.67-$0.75 per Adjusted Diluted Share

DALLAS, May 10, 2011 /PRNewswire via COMTEX/ — Dean Foods Company (NYSE: DF) today announced that the Company earned $0.14 per diluted share, as compared to first quarter 2010 earnings of $0.24 per diluted share. On an adjusted basis, first quarter 2011 diluted earnings per share were $0.14, compared to $0.23 per diluted share earned in the prior year’s first quarter.



For the first quarter of 2011, the net income attributable to Dean Foods totaled $25 million, compared to net income of $43 million in the prior year’s first quarter. Adjusted net income for the first quarter was $25 million, compared to adjusted net income of $43 million in the first quarter of 2010.


“Overall, the business is off to a stronger start than we had anticipated and we are somewhat encouraged as we look to the balance of the year,” said Gregg Engles, Chairman and CEO. “While we have a long way to go at Fresh Dairy Direct-Morningstar, I am cautiously optimistic that the trajectory of our business is upward and that we are on a path for continued progress as we move through the balance of the year. In our other major segment, WhiteWave-Alpro continued to perform well, with both strong top and bottom-line growth against a tough overlap and unfavorable holiday calendar.”


CONSOLIDATED NET SALES


Net sales for the first quarter totaled $3.05 billion, compared to $2.96 billion of net sales in the first quarter of 2010. Net sales for the first quarter increased due to strong sales growth at WhiteWave-Alpro and the pass-through of higher overall dairy commodity costs that were partially offset by soft volumes at Fresh Dairy Direct-Morningstar.


CONSOLIDATED OPERATING INCOME


Consolidated operating income in the first quarter totaled $106 million, compared to $120 million in the first quarter of 2010. First quarter consolidated adjusted operating income totaled $107 million, compared to $123 million in the first quarter of 2010. The decline in first quarter consolidated adjusted operating income was due to a $15 million decline in operating income at Fresh Dairy Direct-Morningstar and a $5 million increase in Corporate expense, offset by $3 million of operating income growth at WhiteWave-Alpro.



































































































Summary of Dean Foods First Quarter 2011 Operating Results









Q1 2011






$ millions



Y/Y




(except EPS)



Change







Consolidated Adjusted Operating Income:


$107



-14%







Interest Expense:


$65



+12%







Consolidated Adjusted Net Income


$25



-42%







Adjusted Diluted Earnings per Share:


$0.14



-39%


FRESH DAIRY DIRECT-MORNINGSTAR


Fresh Dairy Direct-Morningstar fluid milk volumes decreased by 2.4% in the first quarter, compared to industry overall that experienced a volume decline of approximately 1.2% on a year over year basis, based on USDA data and Company estimates. Total volumes from the segment declined 3.8% from the first quarter of 2010, including approximately 0.5% from the divestiture of the Mountain High yogurt business. The soft volume in the quarter was offset by the pass-through of higher average commodity costs in the quarter resulting in Fresh Dairy Direct-Morningstar net sales of $2.54 billion, a 2% increase from $2.49 billion in net sales for the first quarter of 2010. The first quarter average Class I mover was $16.44 per hundred-weight, 3% below the previous quarter and 12% above the first quarter of 2010.



































































































First Quarter 2011 Fresh Dairy Direct-Morningstar Summary














Q1 2011



Y/Y




$ millions



Change







Fluid Milk Volume




-2.4%







Operating Income


$111



-12%







Class I Mover


$16.44/cwt.



+12%







Class II Butterfat


$2.21/lb.



+49%


Fresh Dairy Direct-Morningstar operating income in the first quarter was $111 million, a decrease of 12% from the $127 million reported in the first quarter of 2010. Volume weakness across the portfolio and continued pricing pressure offset strong progress on the Company’s cost reduction initiatives to result in the decline in operating income in the quarter.


WHITEWAVE – ALPRO


For the first quarter of 2011, the WhiteWave-Alpro segment reported net sales of $507 million, 7% higher than first quarter 2010 net sales of $474 million due to continued strong growth across the product portfolio. Among the key brands at WhiteWave-Alpro, net sales of Horizon Organic® branded milk increased slightly more than 20% in the first quarter. Branded creamer sales, which includes both International Delight® and Land O’Lakes® creamers, increased in the mid-single digits on continued strength behind International Delight innovation, despite an unfavorable holiday calendar in the quarter. Silk® sales increased mid-single digits on continued strength of Silk PureAlmond® and Silk PureCoconut®. Alpro sales increased mid-single digits in the quarter on a constant currency basis, as well as after currency translation.




























































First Quarter 2011 WhiteWave-Alpro Summary





Q1 2011



Y/Y


Net Sales


$ millions



Change


WhiteWave-Alpro


$507



+7%







Operating Income





WhiteWave-Alpro


$48



+8%


Segment adjusted operating income in the first quarter for WhiteWave-Alpro was $47.9 million, an increase of 8% from $44.5 million in the first quarter of 2010.


CORPORATE EXPENSE


First quarter 2011 Corporate expense totaled $52.6 million, compared to $47.9 million in the first quarter of 2010.


SELLING, GENERAL AND ADMINISTRATIVE


Reducing selling, general and administrative (SG&A) expense is an area of focus for the Company in 2011. Management now expects to more than double its previous target of a $30 million reduction in the Company’s SG&A expense run-rate from 2010 levels by year end. As part of this effort, the Company eliminated 140 positions in these areas early in the second quarter.


CASH FLOW


Net cash provided by continuing operations for the three months ended March 31, 2011 totaled $37 million, compared to $70 million in the first quarter of 2010. Free cash flow provided by operations, which is defined as net cash provided by continuing operations less capital expenditures, totaled ($3) million for the first three months of 2011, compared to $24 million over the same period in 2010. A reconciliation between net cash provided by continuing operations and free cash flow provided by continuing operations is provided in the tables below. For the full year, the Company expects free cash flow from operations to exceed $200 million.


Capital expenditures totaled $40 million, compared to $46 million in the first quarter of 2010. Total debt outstanding, net of cash on hand, decreased by $95 million during the first quarter. Debt repayment in the first quarter was augmented by the receipt of proceeds from the sale of the Mountain High yogurt business. Total debt at March 31, 2011, net of $109 million in cash on hand, was $3.88 billion. The Company’s funded debt to EBITDA ratio, as defined by its credit agreements, was 5.14x as of the end of the first quarter versus a maximum leverage covenant ratio of 5.75x. The current maximum leverage ratio remains in effect until March of 2012, when it steps down to 5.50x. The Company continues to focus on reducing its overall leverage and expects to exit 2011 with a leverage ratio of 4.75x or below.


FORWARD OUTLOOK


Significant challenges remain in the Fresh Dairy Direct-Morningstar business. Pricing on private label milk processing has been reset to lower levels and will continue to negatively impact year-over-year comparisons through the first half of the year. Additionally, volumes across the conventional milk industry are expected to remain soft over the coming quarters. Also, the restoration of incentive compensation to target levels will remain a headwind throughout the year.


“In this environment, we are focused on three fundamental things to improve the business,” said Mr. Engles. “First, we have stepped up our agenda to reduce costs and improve profitability. Second, because input cost volatility is here to stay, we are focused on pricing to offset inflation through efficient pricing mechanisms. We are working hard to maintain, and where necessary, improve our pricing tools. Third, to offset soft volumes at Fresh Dairy Direct-Morningstar, we are pursuing new business. Beginning in the second quarter, we should begin to see new business volume mitigate some of the fluid milk volume weakness we’ve experienced recently. I’m encouraged by the progress we’ve made so far this year across these three fronts. We hope to drive improving results though the balance of the year and enter 2012 with renewed momentum.


“Looking ahead at the balance of the year, many challenges remain, but our ability to overcome them continues to improve.


“All told, we expect second quarter adjusted diluted earnings to be between $0.15 and $0.20 per share. Based on our performance in the first quarter, as well as our expectations for the second, we have raised our full year guidance to between $0.67 and $0.75 per adjusted diluted share.”


INDUCEMENT GRANTS


The Company also announced today that it granted stock options (“Options”) to purchase an aggregate of 28,852 shares of common stock and 32,460 restricted stock units (“RSUs”) in November 2010 to two newly hired, non-executive officer employees in connection with their employment with the Company. The Company also announced that it granted 20,485 Options and 7,764 RSUs in February 2011 to an executive officer employee per the terms of the letter agreement executed in connection with his employment with the Company in June 2010. The Options described above have an exercise price equal to the fair market value of Dean Foods stock at the close of business on the grant date, and vest in three equal annual installments, beginning on the first anniversary of the date of grant, expiring on the tenth anniversary of the date of grant. The RSUs described above vest in three equal annual installments, beginning on the first anniversary of the date of grant. All awards described above were approved by the Compensation Committee of the Company’s Board of Directors without stockholder approval as “inducement grants,” as such term is defined by the New York Stock Exchange.


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 website at http://www.deanfoods.com//investors. A slide presentation will accompany the webcast.


ABOUT DEAN FOODS


Dean Foods is one of the leading food and beverage companies in the United States and a European leader in branded soy foods and beverages. The Company’s Fresh Dairy Direct-Morningstar segment is the largest U.S. processor and distributor of milk, creamer, and cultured dairy products. These offerings are marketed under more than 50 local and regional dairy brands, as well as through private labels. The WhiteWave-Alpro segment produces and sells an array of branded dairy, soy and plant-based beverages and foods. WhiteWave brands, including Silk(R) soy and almond milk, Horizon Organic(R) milk and dairy products, International Delight(R) coffee creamers, and LAND O LAKES(R) creamers, are category leaders and consumer favorites. Alpro is the pan-European leader in branded soy food products.


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, cost reduction strategies, divestitures 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 cost reductions, 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, +1-214-721-7766; or Investor Relations, Barry Sievert, +1-214-303-3438






















































































































































































































































































































































































































































































































































































































































































(Tables to follow)






DEAN FOODS COMPANY



Condensed Consolidated Income Statements



(Unaudited)



(In thousands, except per share data)


























GAAP



ADJUSTED






Three months ended



Three months ended






March 31,



March 31,






2011


2010



2011



2010













Net sales


$ 3,049,854


$ 2,961,143



$ 3,049,854



$ 2,961,143



Cost of sales


2,299,572


2,213,349



2,299,572



2,213,349












Gross profit


750,282


747,794



750,282



747,794











Operating costs and expenses:










Selling and distribution


485,802


472,727



485,802



472,727




General and administrative


164,662


150,965



156,811


(a)


150,965




Amortization of intangibles


2,738


2,863



2,738



2,863




Facility closing and reorganization costs


10,643


1,551




(b)



(b)



Other operating income


(19,490)





(a)





Loss attributable to non-controlling interest in Hero JV





(1,837)


(c)


(2,214)


(c)




Total operating costs and expenses


644,355


628,106



643,514



624,341












Operating income


105,927


119,688



106,768



123,453











Interest expense


65,270


58,069



65,270



58,069



Other income, net


(48)


(181)



(45)



(181)












Income from continuing operations before











income taxes


40,705


61,800



41,543



65,565











Income taxes


17,323


21,987



16,734


(d)


22,576


(d)










Income from continuing operations


23,382


39,813



24,809



42,989



Gain on sale of discontinued operations, net of tax



1,837






(e)


Loss from discontinued operations, net of tax



(733)






(e)











Net income


23,382


40,917



24,809



42,989





Net loss attributable to non-controlling interest


1,881


2,237




(c)



(c)



Net income attributable to Dean Foods Company


$ 25,263


$ 43,154



$ 24,809



$ 42,989











Average common shares:










Basic


182,817


181,235



182,817



181,235




Diluted


183,293


183,344



183,293



183,344











Basic earnings per common share:










Income from continuing operations attributable to











Dean Foods Company


$ 0.14


$ 0.23



$ 0.14



$ 0.24




Income from discontinued operations attributable to











Dean Foods Company



0.01







Net income attributable to Dean Foods Company


$ 0.14


$ 0.24



$ 0.14



$ 0.24











Diluted earnings per common share:










Income from continuing operations attributable to











Dean Foods Company


$ 0.14


$ 0.23



$ 0.14



$ 0.23




Income from discontinued operations attributable to











Dean Foods Company



0.01







Net income attributable to Dean Foods Company


$ 0.14


$ 0.24



$ 0.14



$ 0.23



















* See notes to Earnings Release Tables



















































































































































































































DEAN FOODS COMPANY


Condensed Consolidated Balance Sheets


(Unaudited)


(In thousands)










March 31,


December 31,


ASSETS



2011


2010







Cash and cash equivalents



$ 108,609


$ 92,007


Other current assets



1,709,936


1,724,209



Total current assets



1,818,545


1,816,216







Property, plant and equipment, net



2,071,703


2,113,391







Intangibles and other assets



4,026,951


4,027,060







Total Assets



$ 7,917,199


$ 7,956,667












LIABILITIES AND STOCKHOLDERS’ EQUITY










Total current liabilities, excluding debt



$ 1,276,528


$ 1,266,715







Total long-term debt, including current portion



3,988,930


4,067,525







Other long-term liabilities



1,068,805


1,108,359







Total Dean Foods Company stockholders’ equity



1,567,361


1,499,525


Non-controlling interest



15,575


14,543



Total stockholders’ equity



1,582,936


1,514,068







Total Liabilities and Stockholders’ Equity



$ 7,917,199


$ 7,956,667


































































































































































































































DEAN FOODS COMPANY



Condensed Consolidated Statements of Cash Flows


(Unaudited)


(In thousands)












Three months ended March 31,


Operating Activities


2011


2010



Net cash provided by continuing operations


$ 37,183


$ 70,276



Net cash provided by discontinued operations



1,238



Net cash provided by operating activities


37,183


71,514






Investing Activities




Payments for property, plant and equipment


(40,411)


(45,992)


Proceeds from divestitures


91,780



Proceeds from sale of fixed assets


1,807


3,053



Net cash provided by (used in) continuing operations


53,176


(42,939)



Net cash used in discontinued operations



(83)



Net cash provided by (used in) investing activities


53,176


(43,022)






Financing Activities




Net repayment of debt


(79,037)


(28,496)


Issuance of common stock, net


(580)


(1,423)


Capital contribution from non-controlling interest


2,913


3,260


Other



193



Net cash used in financing activities


(76,704)


(26,466)







Effect of exchange rate changes on cash and cash equivalents


2,947


(1,143)






Increase in cash and cash equivalents


16,602


883


Cash and cash equivalents, beginning of period


92,007


45,190






Cash and cash equivalents, end of period


$ 108,609


$ 46,073






Computation of Free Cash Flow provided by continuing operations








Net cash provided by continuing operations


$ 37,183


$ 70,276


Net additions to property, plant and equipment


(40,411)


(45,992)







Free cash flow provided by continuing operations


$ (3,228)


$ 24,284


































































































































































































































































































































































































































































































































DEAN FOODS COMPANY


Segment Information and Reconciliation of GAAP to Adjusted Earnings


(Unaudited)


(In thousands)























Three months ended





March 31, 2011






Asset write-down


Facility Closing &


Non-Controlling


(Income) Loss







& (Gain) Loss on


Reorganization


Interest in


Discontinued






GAAP


sales of assets (a)


Costs (b)


Hero JV (c)


Operations (e)


Adjusted











Segment operating income (loss):


















Fresh Dairy Direct – Morningstar


$ 111,482


$ –


$ –


$ –


$ –


$ 111,482



Whitewave – Alpro


46,091




1,837



47,928



Corporate


(60,493)


7,851





(52,642)



Facility closing and reorganization costs


(10,643)



10,643






Other income


19,490


(19,490)








Total operating income


$ 105,927


$ (11,639)


$ 10,643


$ 1,837


$ –


$ 106,768




















Net income attributable to Dean Foods Company (d)


$ 25,263


$ (7,003)


$ 6,549


$ –


$ –


$ 24,809




















Diluted earnings per share


$ 0.14


$ (0.04)


$ 0.04


$ –


$ –


$ 0.14























Three months ended





March 31, 2010






Asset write-down


Facility Closing &


Non-Controlling


(Income) Loss







& (Gain) Loss on


Reorganization


Interest in


Discontinued






GAAP


sales of assets (a)


Costs (b)


Hero JV (c)


Operations (e)


Adjusted











Segment operating income (loss):


















Fresh Dairy Direct – Morningstar


$ 126,771


$ –


$ –


$ –


$ –


$ 126,771



Whitewave – Alpro


42,325




2,214



44,539



Corporate


(47,857)






(47,857)



Facility closing and reorganization costs


(1,551)



1,551






Other income










Total operating income


$ 119,688


$ –


$ 1,551


$ 2,214


$ –


$ 123,453




















Net income attributable to Dean Foods Company (d)


$ 43,154


$ –


$ 939


$ –


$ (1,104)


$ 42,989




















Diluted earnings per share


$ 0.24


$ –


$ –


$ –


$ –


$ 0.24





























* See notes to Earnings Release Tables









































For the three months ended March 31, 2011 and 2010, the adjusted results and certain other non-GAAP financial measures differ from the Company’s results under GAAP by excluding the following:



(a) The adjustment reflects the elimination of a net gain resulting from the gain on sale of our Mountain High yogurt operations, which closed on February 1, 2011, offset by charges recorded in conjunction with the pending sale of our fluid milk operations at our manufacturing facility in Waukesha, Wisconsin as a result of the settlement, subject to court approval, of the Department of Justice civil action related to our acquisition of Foremost Farms, as well as the pending sale and cease of use of certain corporate assets.



(b) The adjustment reflects the elimination of charges related to announced facility closings and reorganization costs.



(c) The results of operations for the Hero/WhiteWave joint venture have been consolidated for financial reporting purposes. The adjustment reflects the operating loss attributable to the 50% interest in the Hero/WhiteWave joint venture that we do not own.



(d) The adjustment reflects the income tax impact for income from continuing operations before income taxes adjustments (a) through (c).



(e) The adjustment reflects the elimination of discontinued operations, net of tax.


SOURCE: Dean Foods Company

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