Dean Foods Reports Second Quarter 2013 Results

DALLAS, Aug. 8, 2013 /PRNewswire/ -- Dean Foods Company (NYSE: DF) today announced second quarter 2013 results. The Company 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.

CASH FLOW

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.

DEBT

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.

Forward Outlook

"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."

SUCCESSFULLY COMPLETED OFFERING OF WHITEWAVE CLASS A COMMON STOCK

On July 25, 2013, the Company announced the closing of the offering of 34.4 million shares of Class A common stock of The WhiteWave Foods Company ("WhiteWave"), including approximately 4.5 million shares sold pursuant to the underwriters' over-allotment option. Following the closing of the offering, Dean Foods no longer holds any shares of WhiteWave common stock.  The completion of the offering marks the successful tax-free disposition of the remaining ownership interest retained by Dean Foods following the spin-off of WhiteWave that occurred in May 2013. The disposition was structured as a tax-free transaction and resulted in approximately $589 million of net proceeds to Dean Foods.

SENIOR SECURED CREDIT FACILITY

On July 2, 2013, the Company entered into a credit agreement pursuant to which the lenders provided the Company with a five-year senior secured revolving credit facility in the amount of up to $750 million. Under the agreement, the Company also has the right to request an increase of the aggregate commitment under the credit facility by, and to request incremental term loans or additional revolver commitments of, up to $500 million without the consent of any lenders not participating in such increase, subject to specified conditions. The proceeds of the credit facility will be used to finance the Company's working capital needs and for general corporate purposes of the Company and its subsidiaries. The senior secured credit facility is available for the issuance of up to $200 million of letters of credit and up to $150 million of swing line loans. The facility will terminate on July 2, 2018.

Loans outstanding under the new senior secured credit facility will bear interest, at the Company's election, at either the Adjusted LIBOR (as defined in the credit agreement) plus a margin of between 1.25% and 2.25% (which is initially 1.75%) based on the leverage ratio (as defined in the credit agreement), or the Alternate Base Rate (as defined in the credit agreement) plus a margin of between 0.25% and 1.25% (which is initially 0.75%) based on the leverage ratio. The Company is permitted to make optional prepayments of the loans, in whole or in part, without premium or penalty (other than applicable LIBOR breakage costs).

CONFERENCE CALL/WEBCAST

A webcast to discuss the Company's financial results and outlook will be held at 9:00 a.m. ET today and may be heard live by visiting the "Webcast" section of the Company's website at http://www.deanfoods.com/. A slide presentation will accompany the webcast.

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. Headquartered in Dallas, Texas, 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, and bottled water. Nearly 19,000 employees across the country work every day to make Dean Foods the most admired and trusted provider of wholesome, great-tasting dairy products at every occasion. For more information about Dean Foods and its brands, visit www.deanfoods.com.

*The LAND O LAKES brand is owned by Land O'Lakes, Inc. and is used by license.

FORWARD-LOOKING STATEMENTS

Some of the statements in this press release are "forward-looking" and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These "forward-looking" statements include statements relating to, among other things, projected sales, operating income, net income, diluted earnings per share, adjusted diluted earnings per share, debt covenant compliance, cost reduction strategies, divestitures, and expected financial performance. These statements involve risks and uncertainties that may cause results to differ materially from the statements set forth in this press release. The Company's ability to meet targeted financial and operating results, including targeted cost reductions, sales, operating income, net income and earnings per share depends on a variety of economic, competitive and governmental factors, including raw material availability and costs, the demand for the Company's products, and the Company's ability to access capital under its credit facilities or otherwise, many of which are beyond the Company's control and which are described in the Company's filings with the Securities and Exchange Commission. For other risks and uncertainties that may cause actual results to differ from the forward-looking statements contained in this press release, see the "Risk Factors" section of the Company's most recent Annual Report on Form 10-K filed with the SEC. The forward-looking statements in this press release speak only as of the date of this release. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to such statements to reflect any change in its expectations with regard thereto or any changes in the events, conditions or circumstances on which any such statement is based.

COMPARISON OF ADJUSTED INFORMATION TO GAAP INFORMATION

In addition to the results prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), we have presented certain adjusted financial results and certain other non-GAAP financial measures, which are from continuing operations and are adjusted to eliminate the net expense or net gain related to the items identified in the "Reconciliation of GAAP to Pro Forma Adjusted Earnings" tables herein. This information is provided in order to allow investors to make meaningful comparisons of the Company's operating performance between periods and to view the Company's business from the same perspective as Company management. Additionally, certain pro forma adjustments were made to our GAAP results for the three and six months ended June 30, 2012 to facilitate a meaningful comparison of operating results between 2012 and 2013. Because the Company cannot predict the timing and amount of charges associated with certain non-recurring items; asset impairment charges; gains or losses related to discontinued operations; deal, integration and separation costs; and facility closing, reorganization and realignment costs, management does not consider these costs when evaluating the Company's performance, when making decisions regarding the allocation of resources, in determining incentive compensation for management, or in determining earnings estimates. Adjusted EBITDA, as defined by the Company, consists of net income attributable to Dean Foods adjusted for the items above, as well as interest, taxes, depreciation and amortization.This non-GAAP financial information is provided as additional information for investors and is not in accordance with, or an alternative to, GAAP. Additionally, these non-GAAP measures may be different than similar measures used by other companies. A full reconciliation of our results for the three and six month periods ended June 30, 2013 and 2012 calculated in accordance with GAAP and on an adjusted basis is set forth herein.

CONTACT: Corporate Communications, Liliana Esposito, +1-214-721-7766; or Investor Relations, Barry Sievert, +1-214-303-3438