Dean Foods Slumps Due to Rising Raw Milk Prices
12 Aug 2014 --- US food and beverage company Dean Foods has announced its second quarter results, and ceo Gregg Tanner said the company was "clearly disappointed" in the outcome. He blamed the 31% annual rise in raw milk prices for the challenging period, and he announced also that the company's programme of accelerated cost reductions is set to continue.
"The second quarter was even more challenging than we had originally anticipated. This is by far the most difficult operating environment in the history of the company, reinforcing the importance of the initiatives we have underway," said Tanner.
Chris Bellairs, Chief Financial Officer of Dean Foods, added, "As a result of the extreme dairy commodity environment, we face unprecedented challenges, including softening category volumes, mix shift out of our brands and significant cost friction."
The Company reported a second quarter 2014 diluted loss from continuing operations attributable to Dean Foods of $0.01 per share, compared to second quarter 2013 diluted loss of $0.61 per share. On an adjusted basis, the second quarter 2014 diluted loss from continuing operations was $0.14 per share, compared to second quarter 2013 adjusted earnings of $0.26 per share.
Second quarter 2014 operating loss totaled $4 million, compared to second quarter 2013 operating income of $44 million. Second quarter 2014 adjusted operating loss totaled $6 million, compared to income of $65 million in the year-ago period.
Net loss attributable to Dean Foods totaled $1 million for the second quarter of 2014 compared to a $57 million net loss attributable to Dean Foods for the year- ago period. On an adjusted basis, second quarter net loss attributable to Dean Foods totaled $13 million, compared to $24 million of net income attributable to Dean Foods for the second quarter of 2013.
Net sales for the second quarter of 2014 totaled $2.4 billion, compared to $2.2 billion of net sales in the second quarter of 2013.
Dean Foods' share of US fluid milk sales volume increased to 35.9% during the second quarter from 35.7% in the first quarter of 2014. Industry fluid milk volumes, through the two months ending in May, declined approximately 4.0 percent year-over-year on an unadjusted basis, based on USDA data.
On a full quarter same basis, Dean Foods' unadjusted fluid milk volumes declined 4 percent on a year-over-year basis. This quarter's volumes continue to reflect the negative impact of the RFP-driven volume loss from a significant customer in 2013. Excluding the impact of the RFP and another customer's decision to vertically integrate last year, our fluid milk volumes decreased 0.3% in the quarter, significantly better than the overall category's volume decline.
The Company continues to make solid progress against its accelerated cost reduction agenda. Since announcing in the first quarter of 2013 its intention to close eight to twelve (10-15%) of its manufacturing facilities by mid-2014 the Company has closed twelve plants. Four of the twelve closures occurred in June and July of this year. As we move beyond our accelerated cost reduction agenda, we expect to return to our normal optimization activities.
The second quarter 2014 average Class I Mover, a measure of raw milk costs, was $23.66 per hundred-weight, an increase of 31 percent from the second quarter of 2013, and 6 percent above the first quarter 2014 level. The second quarter 2014 average was the highest quarterly Class I Mover average in the history of the U.S. dairy industry.
CASH FLOW
Consolidated net cash from continuing operations for the six months ended June 30, 2014, totaled $25 million. Free cash flow used in continuing operations, which is defined as net cash provided by or used in continuing operations less capital expenditures, was $28 million for the six months ended June 30, 2014. On an adjusted basis, which excludes certain other items as outlined within the reconciliation tables below, Dean Foods generated $2 million in free cash flow through the first six months of 2014.
DEBT
Total debt at June 30, 2014, net of $60 million cash on hand, was approximately $927 million. The Company's funded net debt to EBITDA ratio calculated in accordance with its credit agreements was 3.61 times as of the end of the second quarter of 2014.
Forward Outlook
"The balance of the year appears rocky, with a continued unpredictable and volatile dairy commodity environment. That makes it difficult to provide guidance beyond the immediate quarter," stated Tanner.
"Therefore for the time being, we are going to provide specific guidance only for the next quarter, where our visibility is better. In this case, we expect an adjusted diluted net loss of between $0.05 and $0.15 per share in the third quarter. While we hope to see a more positive environment later in the year, the uncertainty surrounding whether or when that will occur leads us to withdraw our full year guidance for the present time."
"We also expect to be at the low end of our prior 2014 capital expenditure guidance of $150-175 million."
Dean Foods is a leading food and beverage company in the United States and is the nation's largest processor and direct-to-store distributor of fluid milk. The Dean Foods portfolio includes TruMoo, the leading national flavored milk brand, along with well-known regional dairy brands such as Alta Dena, Berkeley Farms, Country Fresh, Dean's, Garelick Farms, LAND O LAKES milk and cultured products, Lehigh Valley Dairy Farms, Mayfield, McArthur, Meadow Gold, Oak Farms, PET, T.G. Lee®, Tuscan and more.
In all, Dean Foods has more than 50 local and regional dairy brands and private labels.
Dean Foods also makes and distributes ice cream, cultured products, juices, teas,
