Dean Foods Reports Strong First Quarter 2013 Results
13 May 2013 --- Dean Foods Company has announced strong first quarter 2013 results. The Company reported first quarter 2013 diluted earnings per share of $2.63, compared to first quarter 2012 earnings per share of $0.20.
These financial results reflect the January 2013 sale of the Company's Morningstar business, the gain of which is the primary driver of the diluted earnings of $2.63 per share and is reflected in discontinued operations, as well as the Company's majority ownership interest in its consolidated subsidiary, The WhiteWave Foods Company. The publicly-held minority interest is reflected as a non-controlling interest. On an adjusted basis, first quarter 2013 diluted earnings were $0.29 per share. Excluding the Company's ownership interest in WhiteWave, the Company's Ongoing Dean Foods segment, which includes the former FDD segment and Corporate costs, reported adjusted diluted earnings of $0.16 per share.
First quarter consolidated operating income totaled $71 million, compared to first quarter 2012 consolidated operating income of $90 million. First quarter adjusted consolidated operating income totaled $115 million, compared to $119 million in the year-ago period. The Ongoing Dean Foods business segment, which excludes Dean Foods' WhiteWave interest, but includes all corporate costs, reported adjusted first quarter operating income of $74 million, a 12 percent increase from $66 million in the first quarter of 2012 on a pro forma and comparative basis.
"Our continued focus on the fundamentals of cost, volume and price delivered a solid start to the year in the first quarter," said Gregg Tanner, Chief Executive Officer of Dean Foods. "The narrowed focus on the key drivers of the business, coupled with our Company-wide 'say what you'll do and do what you say' attitude, have helped deliver nine consecutive quarters of results at or above our guidance."
Consolidated net income attributable to Dean Foods totaled $493 million for the first quarter of 2013. Consolidated adjusted net income attributable to Dean Foods totaled $54 million. Adjusted net income for the Ongoing Dean Foods segment, was $30 million.
Net sales for the first quarter of 2013 totaled $2.9 billion, compared to $2.9 billion of net sales in the first quarter of 2012. Net sales for the Ongoing Dean Foods segment, totaled $2.3 billion in the first quarter of 2013, compared to $2.4 billion in the same period last year.
Dean Foods' share of U.S. fluid milk sales volume remained relatively steady at 38 percent during the first quarter. Industry fluid milk volumes declined approximately 3.6 percent in the first quarter on an unadjusted basis, based on USDA data and company estimates. On the same basis, Dean Foods unadjusted fluid milk volumes declined 4.1 percent on a year-over-year basis. Management estimates more than half of the decline in Dean Foods fluid milk volumes is attributable to the overlap of leap year and the quality of days in the quarter. USDA adjusted volume data for the first quarter is not available at this time.
The first quarter 2013 average Class I Mover, a measure of raw milk costs, was $18.33 per hundred-weight, an increase of 6 percent from the first quarter of 2012, and 10 percent below the fourth quarter 2012 level.
Consolidated net cash used in continuing operations for the first quarter of 2013 totaled $109 million. Free cash flow from continuing operations, which is defined as net cash provided by continuing operations less capital expenditures, was negative $146 million for first quarter of 2013. Net cash used in continuing operations at Ongoing Dean Foods in the first quarter of 2013 totaled $89 million. This, combined with capital expenditures of $16 million in the quarter resulted in Free Cash Flow at Ongoing Dean Foods of negative $105 million for the first quarter of 2013. Negative cash flow in the quarter was driven in part by two significant one-time items, specifically the shift in Morningstar accounts receivables from intercompany to third party and swap termination fees associated with the debt repayments made by the Company using the Morningstar sale proceeds. Also impacting cash flow in the quarter were higher incentive compensation payouts reflecting a strong 2012 performance, and increased inventories of ice cream and butter. A reconciliation between net cash used in continuing operations and free cash flow used in continuing operations is provided in the tables below. Total cash flow was supplemented by the receipt of $1.45 billion of proceeds from the sale of the Morningstar division, for which the tax obligations will be paid throughout the remainder of 2013, offset by the repayment of $1.3 billion of Dean Foods' debt.
For purposes of credit facility compliance, at the Ongoing Dean Foods level, which excludes WhiteWave and its debt, total debt at March 31, 2013, net of $19 million cash on hand, was approximately $1.0 billion. The Company's funded debt to EBITDA ratio, as defined by its credit agreements, was 2.13 times as of the end of the first quarter of 2013 versus a maximum leverage ratio covenant of 5.25 times.
"As we complete the spin-off of WhiteWave we will continue to focus on driving value in our core business and delivering solid 2013 growth," continued Tanner. "Based on recent industry trends, and the forthcoming volume losses primarily related to a single previously disclosed RFP, we now expect volumes to decline low-to-mid single digits for the year. The dairy commodity environment looks to be a neutral factor in our forecast. Diesel, resin and sugar are expected to be modest tailwinds. We believe the momentum behind our cost reduction activities will deliver solid bottom-line results. In addition to the three plant closures announced late last year, we have initiated the closing of our Shreveport, LA and Buena Park, CA fluid milk plant so far in 2013. Overall for the year, we continue to expect to substantially offset the financial impact of the lost volume through accelerated cost reduction activities, resulting in a low to mid-single digit increase in full year 2013 Ongoing Dean Foods' operating income from the rebased 2012 results we issued last quarter."
Excluding WhiteWave's operating results, Dean Foods continues to expect to deliver adjusted diluted earnings per share of between $0.45 and $0.55 for the full year 2013. For the second quarter, Dean Foods expects to earn between $0.11 and $0.15 per share, excluding WhiteWave's operating results.
On May 1, the Company announced that its board of directors had approved the distribution to Dean Foods stockholders of a portion of its remaining equity interest in The WhiteWave Foods Company and had determined the approximate distribution ratios, record date and distribution date for the spin-off.
On May 23, 2013, the distribution date, Dean Foods will distribute to its stockholders an aggregate of 47,686,000 shares of WhiteWave Class A common stock and 67,914,000 shares of WhiteWave Class B common stock as a pro rata dividend on the outstanding shares of Dean Foods common stock outstanding at the close of business on the record date of May 17, 2013. Based on the number of shares of Dean Foods common stock outstanding as of March 31, 2013, Dean Foods estimates that each share of Dean Foods common stock will receive approximately 0.256 shares of WhiteWave Class A common stock and approximately 0.364 shares of WhiteWave Class B common stock in the distribution. The actual distribution ratios for the WhiteWave Class A common stock and the WhiteWave Class B common stock to be distributed per share of Dean Foods common stock will be determined based on the number of shares of Dean Foods common stock outstanding on the record date.
Fractional shares of WhiteWave Class A common stock and WhiteWave Class B common stock will not be distributed to Dean Foods stockholders. Instead, the fractional shares of WhiteWave Class A common stock and WhiteWave Class B common stock will be aggregated and sold in the open market, with the net proceeds distributed pro rata in the form of cash payments to Dean Foods stockholders who would otherwise receive WhiteWave fractional shares. The spin-off has been structured to qualify as a tax-free distribution to Dean Foods stockholders for U.S. federal tax purposes. Cash received in lieu of fractional shares will, however, be taxable. Dean Foods stockholders should consult their tax advisors with respect to U.S. federal, state, local and foreign tax consequences of the distribution.
Upon completion of the spin-off, the Company will cease to own a controlling financial interest in WhiteWave and Dean Foods will no longer consolidate WhiteWave for financial reporting purposes, with a non-controlling interest adjustment for the economic interest in WhiteWave that the Company does not own. Additionally, upon completion of the spin-off, WhiteWave's results will be presented as discontinued operations.
Following the distribution, the Company will retain ownership of 34.4 million shares of WhiteWave's Class A common stock, which Dean Foods expects to dispose of within 18 months of the distribution in one or more debt-for-equity exchanges or other tax-free dispositions. The disposition of Dean Foods' remaining ownership interest in WhiteWave in one or more tax-free dispositions after the spin-off would be subject to various conditions, including Board approval, the receipt of any necessary regulatory or other approvals, the existence of satisfactory market conditions and maintenance of the private letter ruling from the Internal Revenue Service. There can be no assurance as to when or whether any further disposition will occur.
