Dean Foods Posts Loss In Q2, as Share of US Fluid Milk Sales Falls

09 Aug 2013 --- Dean Foods Company has reported second quarter 2013 loss from continuing operations attributable to Dean Foods of $0.17 per share, compared to second quarter 2012 earnings of $0.10 per share. On an adjusted basis, second quarter 2013 diluted earnings from continuing operations were $0.13 per share.

Second quarter 2013 operating income totaled $44 million, compared to second quarter 2012 operating income of $70 million. Second quarter 2013 adjusted operating income totaled $65 million, compared to $72 million in the year-ago period on a pro forma and comparative basis.

"Results for the second quarter were in-line with expectations," said Gregg Tanner, Chief Executive Officer of Dean Foods. "We successfully offset the majority of the volume deleverage associated with lower volumes in the quarter through execution behind our accelerated cost reduction and productivity agenda. These initiatives build on our competitive advantages and position us to succeed going forward. Additionally, we have continued to make progress in other areas as well, including the recent replacement of our credit facility and the disposition of our remaining WhiteWave ownership interest that delivered $589 million to Dean Foods to further bolster our financial strength and flexibility."

Net loss attributable to Dean Foods totaled $57 million for the second quarter of 2013. On an adjusted basis, second quarter net income attributable to Dean Foods totaled $24 million.

Net sales for the second quarter of 2013 totaled $2.2 billion, compared to $2.2 billion of net sales in the second quarter of 2012.

Dean Foods' share of U.S. fluid milk sales volume declined to 36.4 percent during the second quarter from 37.8% in the first quarter of 2013. Industry fluid milk volumes declined approximately 2.1 percent year-over-year in the second quarter on an unadjusted basis, based on USDA data and company estimates. On the same basis, Dean Foods' unadjusted fluid milk volumes declined 6 percent on a year-over-year basis. Management estimates that more than two-thirds of the decline in Dean Foods fluid milk volumes is attributable to the transition of volume to other providers related to previously disclosed business losses.

The Company continues to make solid progress against its target of $120 million of cost savings in 2013, including the planned closure of eight to twelve (10-15%) of its manufacturing facilities by mid-2014. The Company has closed or announced the closure of eight plants since its accelerated cost reduction initiative began in the fourth quarter of 2012.

The second quarter 2013 average Class I Mover, a measure of raw milk costs, was $18.12 per hundred-weight, an increase of 16 percent from the second quarter of 2012, and 1 percent below the first quarter 2013 level.

Consolidated net cash used in continuing operations for the six months ended June 30, 2013 totaled $245 million. Free cash flow used in continuing operations, which is defined as net cash provided by continuing operations less capital expenditures, was $294 million through the second quarter of 2013. Negative cash flow was driven primarily by one-time items, most of which were associated with the strategic separation activities, including the payment of $213 million of taxes related to the Morningstar sale, $30 million related to the impact of moving Morningstar accounts receivable from intercompany to external accounts receivable, and $24 million of deal costs, as well as a $19 million litigation settlement payment in the second quarter.  A reconciliation between net cash used in continuing operations and free cash flow used in continuing operations is provided in the tables below.

Total debt at June 30, 2013, net of $26 million cash on hand, was approximately $1.2 billion. The Company's funded debt to EBITDA ratio, as defined by its credit agreements in effect on June 30, 2013, was 2.69 times as of the end of the second quarter of 2013, versus a maximum leverage ratio covenant of 5.25 times under such credit agreements.

"Turning to the forward outlook, we believe the momentum behind our cost reduction activities will allow us to deliver solid full-year results," continued Tanner. "This is despite a challenging environment that includes fluid milk category volumes that appear to be a bit softer than we originally anticipated. With the full-quarter impact of the RFP-related volume reduction in the third quarter, continued soft category trends and normal seasonality in the business, we expect the third quarter to be the most challenging of the year.

"The dairy commodity environment looks to be a neutral factor in our forecast. Other commodities are relatively neutral to modest tailwinds. Overall for the year, we continue to expect to substantially offset the financial impact of the lower volumes through accelerated cost reduction and productivity activities, resulting in a low-single digit increase in operating income from the pro forma 2012 results.

"With this in mind, we are narrowing our full-year guidance for adjusted diluted earnings to a range of between $0.47 and $0.53 per share. Lower than previously forecast interest expense due to continued debt reduction is expected to help offset a modest decrease in our EBIT and EBITDA assumptions. We now expect full year EBITDA to be between $410 and $430 million.

"For the third quarter, we expect adjusted diluted earnings of $0.05 to $0.08 per share."