Dean Foods Q2 Loss Narrows, But Misses View; Withdraws 2014 Outlook

(RTTNews) - Dean Foods Co. (DF) on Monday reported a loss for the second quarter that narrowed from last year, reflecting higher sales and lower expenses. However, the dairy company reported an adjusted loss for the quarter amid higher raw milk costs, while analysts' expected the company to report adjusted earnings for the quarter. Revenues for the quarter beat Street estimates.

Looking ahead, Dean Foods provided guidance for the third quarter below Street view and also withdrew its earnings forecast for fiscal 2014, citing a continued unpredictable and volatile dairy commodity environment.

Gregg Tanner, chief executive officer of Dean Foods said, "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."

Dallas, Texas-based Dean Foods reported net loss for the second quarter of $0.65 million or $0.01 per share, compared to net loss of $56.87 million or $0.61 per share in the prior-year quarter, which included a loss from discontinued operations of $2.99 million or $0.27 per share.

Excluding items, adjusted net loss for the latest quarter was $12.73 million or $0.14 per share, compared to adjusted net income of $24.20 million or $0.26 per share in the same period last year.

On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $0.06 per share for the quarter. Analysts' estimates typically exclude special items.

Dean Foods said that as a result of the extreme dairy commodity environment, it faced unprecedented challenges, including softening category volumes, mix shift out of its brands and significant cost friction.

The quarter's average Class I Mover, a measure of raw milk costs, was $23.66 per hundred-weight, up 31 percent from the year-ago quarter. The quarter's average was the highest quarterly Class I Mover average in the history of the U.S. dairy industry.

However, net sales for the quarter increased 7 percent to $2.39 billion from $2.23 billion in the same quarter last year, and beat analysts' consensus revenue estimate of $2.32 billion.

Total operating costs and expenses for the quarter decreased 6 percent to $402.62 million from $428.72 million in the prior-year quarter.

Dean Foods' share of U.S. fluid milk sales volume in the second quarter rose to 35.9 percent from 35.7 percent in the preceding first quarter. But through the two months ending in May, based on USDA data, industry fluid milk volumes declined about 4 percent year-over-year on an unadjusted basis.

Dean Foods noted that its unadjusted fluid milk volumes also declined 4 percent on a year-over-year basis and continued 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, the company's fluid milk volumes decreased 0.3 percent in the quarter, but were better than the overall category's volume decline.

Looking ahead to the third quarter, Dean Foods expects adjusted loss in a range of $0.05 to $0.15 per share. Analysts expect the company to report earnings of $0.26 per share for the quarter.

For fiscal 2014, Dean Foods withdrew its outlook for adjusted earnings of about $0.60 per share. The company said while it expects to see a more positive environment later in the year, the uncertainty surrounding whether or when that will occur has led it to withdraw its full-year guidance for the present time.

Tanner said, "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."

Dean Foods noted that since announcing in the first quarter of 2013 its intention to close eight to twelve of its manufacturing facilities by mid-2014, it has closed twelve plants. Four of the twelve closures occurred in June and July of 2014. The company expects to return to its normal optimization activities as it moves beyond its accelerated cost reduction agenda.

DF closed Friday's trading at $15.81. In Monday's pre-market trades, the stock is down $1.31 or 8.29 percent to $14.50.