Profits Drop at Dean Foods, Caused by Weak Demand for Milk

824aa69f-30f2-4887-a7de-4c26c3a888aearticleimage.jpeg

17 Feb 2017 --- Dairy distributor Dean Foods have reported an increase to its Q4 earnings, but gave a downbeat 2017 outlook as milk volumes are still expected to come under pressure. The company forecast adjusted earnings of $1.35 to $1.55 per share for the current fiscal year and earnings of 12 cents to 20 cents a share for the first quarter. 

Q4 net income per diluted share was $0.36 and adjusted net income per diluted share was $0.38
Full year net income per diluted share was $1.31 and adjusted net income per diluted share was $1.57. Full year 2017 adjusted diluted earnings are expected to be $1.35 to $1.55 per diluted share; Q1 2017 adjusted diluted earnings are expected to be $0.12 to $0.20 per diluted share. 

Chief Executive Officer Ralph Scozzafava said, "2016 was a strong year for Dean Foods. In the fourth quarter, we delivered 6% growth in both adjusted operating income per gallon and adjusted earnings per share. For the full year, our operating income per gallon grew nearly 21% versus prior year. Our adjusted earnings per share of $1.57 represents a nearly 28% increase over 2015. I am very pleased with the hard work this organization has dedicated to driving improved results in support of our long-term strategic agenda."

Business Updates             
In November 2016, the company announced a strategic joint venture with CROPP, the largest independent organic farmer cooperative in the US, to bring the Organic Valley brand and its organic milk to retailers and consumers by leveraging Dean Foods' selling organization, processing plants and refrigerated direct-to-store delivery ("DSD") distribution system. The joint venture, called Organic Valley Fresh, will operate on a 50/50 basis of ownership, governance and profit, with a dedicated management team working in the interest of the joint venture and its objectives. For Dean Foods, this brings a strong organic brand to our existing portfolio of category-leading brands, a reliable supply of organic milk, and a new channel for profitable growth. Adding the Organic Valley brand to the current portfolio of Dean Foods' branded dairy products such as DairyPure and TruMoo enables Dean Foods to offer retail customers the largest and most comprehensive lineup of dairy offerings across multiple segments with national brands that consumers know and trust. The joint venture, which we expect to begin shipping product in mid-to-late 2017, brings the best capabilities of both organizations together for a common goal of profitable brand growth, driving awareness through increased reach and availability of great tasting organic products. Due to ramp-up, earnings accretion in 2017 is expected to be minimal, but the company is excited about the potential for growth starting in 2018.

Fourth Quarter and Full Year 2016 Operating Results

Chief Financial Officer Chris Bellairs said, "We delivered a fourth quarter and full year of exceptional financial performance. For the full year 2016, we delivered $257 million of net cash from operating activities and $113 million of free cash flow. On an all-cash netted basis, our total leverage improved to 1.89 times net debt to bank EBITDA. Importantly, we returned nearly half of our 2016 free cash flow to shareholders through dividends and opportunistic share repurchases."

"We provide guidance on a non-GAAP basis and are unable to provide a full reconciliation to GAAP without unreasonable efforts as we cannot predict the amount or timing of certain elements which are included in reported GAAP results, including mark-to-market adjustments of hedging activities, asset impairment charges, and other non-recurring events or transactions that may have a significant impact to reported GAAP results."
 
Total volume across all products was 653 million gallons for the fourth quarter of 2016, a 0.8% decline compared to total volume of 658 million gallons in the fourth quarter of 2015. Full year 2016 volumes totaled 2.6 billion gallons, a 2.1% decline versus full year 2015.

Based on fluid milk sales data published by the USDA through December, fluid milk volume decreased 1.2% year-over-year in the fourth quarter of 2016 on an unadjusted basis. On this same basis, Dean Foods' share of US fluid milk volumes increased by 10 basis points year-over-year.

Raw milk costs in the fourth quarter of 2016 increased roughly 6% from the third quarter of 2016 and decreased 2% from the fourth quarter of 2015. On a full year basis, the average Class I Mover was $14.80 per hundred-weight, a 9% decrease over full year 2015. For 2017, dairy commodity inflation is expected to be in the range of 15-20%, with the highest inflationary levels expected in the first half of 2017.

Cash Flow
Net cash provided by continuing operations for the twelve months ended December 31, 2016, totaled $257 million. Free cash flow provided by continuing operations, which is defined as net cash provided by continuing operations less capital expenditures, was $113 million for the twelve months ended December 31, 2016, a $133 million decrease as compared to the prior year period. Year-to-date free cash flow is comparable to the prior year period after reconciling for higher incentive compensation payouts in the first quarter of 2016 and the $56 million associated with the Company's 2014 federal tax refund received in the first quarter of 2015. Capital expenditures totaled $63 million for the quarter and $145 million for the full year 2016. For the full year 2017, we expect capital expenditures of $120 million to $130 million, and free cash flow of $125 million to $150 million.

Debt
Total outstanding debt at December 31, 2016, net of $18.0 million cash on hand, was approximately $877.1 million. The Company's net debt to bank EBITDA total leverage ratio, on an all-cash netted basis, decreased sequentially to 1.89 times at the end of the fourth quarter of 2016 due to strong free cash flow and increased bank EBITDA.

Forward Outlook
Going forward, Dean Foods will transition to providing guidance on an annual basis only. "We are driving our strategy with a long-term perspective and feel it's appropriate to give a better view that emphasizes sustainable value creation for our shareholders."

"Our 2017 growth and productivity agendas are robust and will ramp up through the year, driving a larger portion of our earnings into the back half. We expect to deliver full-year adjusted earnings per share of $1.35 to $1.55. In the first quarter, we expect dairy commodity inflation of nearly 20% and a roughly 1% decline in total volume performance versus prior year. As we continue to invest in our strategic initiatives and brand building for future growth, we expect first quarter adjusted earnings per share in the range of $0.12 to $0.20," concluded Scozzafava.

To contact our editorial team please email us at editorial@cnsmedia.com

Related Articles

Food Ingredients News

Chocolate snacking: Almonds thrive amid premium, plant-based and texture trends

25 Apr 2018 --- Indulgence has long been known as a key driver for chocolate NPD, but nowadays consumers are looking for a healthier chocolate experience. According to Innova Market Insights, 11 percent of global chocolate products have an indulgent and premium positioning in 2017 and globally, 23 percent of all chocolate launches tracked in 2017 carry a texture claim. Social eating occasions are driving the trend for sharing bags and easy to share formats across the confectionery, bakery and snacking segments.

Food Ingredients News

Milka chocolate joins Mondelēz sustainable cocoa sourcing program

25 Apr 2018 --- Mondelēz International’s iconic chocolate brand Milka is joining the confectionery giant’s sustainable cocoa sourcing program, Cocoa Life – and there are plans to add the entire Milka chocolate European portfolio by the end of next year.

Business News

Novozymes Q1 sales boosted by Food & Beverages performance, maintains outlook

25 Apr 2018 --- Novozymes has reported its first-quarter results with an overall sales growth of 2 percent, in line with company expectations. And the global biotechnology company is on track to deliver its full-year sales outlook of 4-6 percent. However, President and CEO Peder Holk Nielsen points to uncertainty in the agriculture-related business, citing “geopolitical tensions.”

Packaging & Technology News

Plastic recycling: Canary Wharf launches UK’s first deposit return machine

24 Apr 2018 --- East London commercial district, Canary Wharf, has unveiled the first UK on-site Deposit Return Scheme machine as part of its “breaking the plastic habit” strategy. The move coincides with the UK Government’s strategy to tackle plastic waste by introducing a European-style nation-wide Deposit Return Scheme on all plastic, glass and metal drink containers.

Food Ingredients News

Sustainable operations: Consumer and investor demand spurs food & beverage response, finds Ceres report

24 Apr 2018 --- Consumer demand for clean food, transparent labeling and responsible sourcing is challenging the industry’s business models, forcing large companies to rapidly transform their portfolios by accelerating research and development timelines, vying to acquire artisanal or organic brands, and reformulating existing product lines. These were among the key learnings from a food and beverage sector analysis is derived from Turning Point: Corporate Progress on the Ceres Roadmap for Sustainability.

More Articles