US: Cost control boosts Dean Foods profits
- H1 profits up despite flat sales
- Fall in liquid milk revenues pressure sales
Cost control helped Dean Foods profits
US dairy group Dean Foods has reported a jump in half-year profits as a focus on costs offset flat sales.
Dean Foods yesterday (7 August) reported net income of US$94.5m for the six months to the end of June. A year earlier, it had booked a loss of $25.2m.
Adjusted net income, which excluded one-off items including restructuring costs, asset write-downs and a charge last year from a litigation settlement, more than doubled from $57.1m to $123m.
Sales dipped 0.1% to $6.34bn. Dean Foods said a fall in dairy commodity costs had meant sales from its Fresh Dairy Direct business, which supplies milk to US retailers, were down.
The company also announced plans to list part of the business that runs its soy and organics operations, including the Alpro brand.
Dean Foods Reports Strong Second Quarter Results
Reported Solid Growth Across All Operating Segments
Q2 Diluted Earnings per Share of $0.30, Adjusted Diluted Earnings per Share Increase 100 percent to $0.36
Segment Operating Income Rises, 41 percent at Fresh Dairy Direct, 31 percent at WhiteWave-Alpro,19 percent at Morningstar
Third Quarter 2012 Guidance of $0.25-$0.30 Adjusted Diluted Earnings per Share
Full Year 2012 Guidance Increased to $1.18-$1.28 Adjusted Diluted Earnings per Share
DALLAS, Aug. 7, 2012 /PRNewswire/ -- Dean Foods Company (NYSE: DF) today announced strong second quarter results driven by continued solid growth across all operating segments as well as a continued focus on expense control. The Company reported second quarter 2012 diluted earnings per share of $0.30, compared to a second quarter 2011 loss of $0.28 per share. The year ago quarter included a $131 million charge related to the settlement of the Tennessee dairy farmer class action litigation. On an adjusted basis, second quarter 2012 diluted earnings per share were $0.36, a 100 percent increase from the $0.18 earnings per diluted share in the prior year's second quarter.
Second quarter consolidated operating income totaled $146 million, compared to a consolidated operating loss of $16 million in the second quarter of 2011. Adjusted second quarter consolidated operating income totaled $157 million, a 37 percent increase from $114 million reported in the second quarter of 2011.
Separately, Dean Foods announced today that The WhiteWave Foods Company, which will be comprised of Dean Foods' WhiteWave-Alpro segment, has filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission ("SEC") relating to its proposed initial public offering of up to 20 percent of its common stock. Proceeds from the offering, as well as $800-$925 million to be borrowed under a new credit facility at The WhiteWave Foods Company, are expected to be applied to reduce Dean Foods' outstanding debt. As a result, management expects Dean Foods' leverage ratio to decline to approximately 3.5x debt to EBITDA, as defined by its credit agreements, following the transaction, assuming a Q4 2012 closing. In the event that the IPO is not completed by year end, management expects the Dean Foods year-end leverage ratio to be approximately 3.75x. At the time of the offering, Gregg Engles will be appointed Chairman and CEO of The WhiteWave Foods Company, while remaining Chairman of Dean Foods. Gregg Tanner, President of Fresh Dairy Direct and Chief Supply Chain Officer, will be promoted to CEO of Dean Foods. Gregg Tanner has over 30 years of food industry experience with companies including The Hershey Company, ConAgra Foods, Quaker Oats Company, and Ralston Purina Company. His leadership of Fresh Dairy Direct and the Supply Chain organization over the past 5 years with Dean Foods has been instrumental in the strong return to growth at Fresh Dairy Direct. For additional information, please refer to Dean Foods' separate press release issued today.
"We continued to build on our momentum in the second quarter, delivering strong growth across all of our operating segments," said Gregg Engles, Chairman and CEO. "In addition to each of our businesses executing well against their stated plans, we also continued to benefit from disciplined expense control across the organization. As a result of these efforts, we reported a 37 percent increase in consolidated adjusted operating income and a 100 percent increase in adjusted diluted earnings per share. We are pleased with the progress we continue to make on all fronts, which is clearly translating into significantly improved financial performance and flexibility."
Net income attributable to Dean Foods totaled $56 million, compared to a net loss of $51 million in the prior year second quarter. Adjusted net income for the second quarter was $66 million, a 105 percent increase from $32 million in the second quarter of 2011.
Net sales for the second quarter totaled $3.1 billion, compared to $3.3 billion of net sales in the second quarter of 2011, reflecting the pass-through of lower dairy commodity costs.
WHITEWAVE – ALPRO
For the second quarter of 2012, the WhiteWave-Alpro segment reported net sales of $573 million, 11 percent higher than second quarter 2011 net sales of $514 million. Strong category growth, and continued investment in brand building, innovation, and marketing drove the second quarter performance.
Among the product categories at WhiteWave-Alpro, net sales in the plant-based foods and beverages platform, which includes Silk® soymilk, almondmilk and coconutmilk products, increased more than 20 percent in the second quarter, driven by continued strong growth of Silk PureAlmond®. Net sales in the coffee creamers and beverages platform, which includes coffee creamers under the International Delight®, Land O'Lakes®, Silk® and Horizon Organic® brands, as well as International Delight Iced Coffee, increased by nearly 20 percent in the second quarter, driven by continued strong growth of International Delight Creamers and Iced Coffee. Net sales in the premium dairy platform, which includes Horizon Organic® branded milk and other products, increased mid-single digits. Alpro net sales increased high-single digits on a Euro currency basis and declined mid-single digits after currency conversion.
A culture of efficiency and expense control at WhiteWave-Alpro leveraged 11 percent top-line growth to deliver 31 percent operating income growth in the second quarter. For the quarter, WhiteWave-Alpro operating income was $58 million, versus $44 million in the second quarter of 2011.
FRESH DAIRY DIRECT
Fresh Dairy Direct delivered another quarter of strong performance, driven by continued volume outperformance of the industry, a favorable commodity environment, effective price realization and strong expense control. For the second quarter, Fresh Dairy Direct fluid milk volumes were essentially flat on a year-over-year basis, excluding the impact of divestitures. This compares to the balance of the industry that experienced a volume decline of approximately 2.5 percent on a year-over-year basis, based on USDA data and Company estimates.
Fresh Dairy Direct net sales were $2.2 billion, a 10 percent decline from $2.4 billion in net sales for the second quarter of 2011, reflecting the pass-through of lower dairy commodity costs. The second quarter 2012 average Class I Mover, a measure of raw milk costs, was $15.58 per hundred-weight, a decrease of 21 percent from the second quarter of 2011.
Second quarter Fresh Dairy Direct operating income was $125 million, a 41 percent increase from $89 million in the second quarter of 2011.
Second quarter Morningstar volumes increased 10 percent, reflecting continued growth in foodservice and retail channels. Core volume growth, offset by the pass-through of lower dairy commodity costs, drove Morningstar net sales of $345 million, essentially flat with the year ago period. Morningstar operating income increased 19 percent in the second quarter to $32 million, from $27 million in the second quarter of 2011.
Second quarter Corporate expense totaled $63 million, compared to $49 million in the second quarter of 2011. Second quarter 2012 adjusted Corporate expense totaled $59 million, compared to $48 million in the year-ago period, reflecting strong expense control across G&A, offset by higher incentive compensation expense.
Net cash provided by operating activities for the six months ended June 30, 2012 totaled $239 million, compared to $180 million in the second quarter of 2011. Free cash flow from operations, which is defined as net cash provided by operations less capital expenditures, was $143 million for the first six months of 2012, compared to $61 million for the same period in 2011. A reconciliation between net cash provided by operations and free cash flow from continuing operations is included below.
Year-to-date capital expenditures totaled $96 million, compared to $119 million for the first six months of 2011. Total debt outstanding, net of cash on hand, as of June 30, 2012, decreased by $196 million from March 31, 2012. The Company's funded debt to EBITDA ratio as defined by its credit agreements declined to 3.96x as of the end of the second quarter, comfortably below its maximum leverage covenant ratio of 5.50x. Management continues to focus on reducing the Company's overall leverage.
"Looking ahead at Q3 and the balance of the year, we expect continued strong performance across the business," continued Engles. "We expect first half momentum to continue at WhiteWave with strong volume-driven net sales growth and operating leverage.
"At Fresh Dairy Direct, we will continue to focus on the fundamentals of the business. Volume performance, price realization, and cost efficiency. We expect to continue to post solid year-over-year growth despite expectations for a rising dairy commodity environment. We expect mid to high-teens full year operating income growth at Fresh Dairy Direct.
"At Morningstar, solid customer growth, new product innovations, and a focused approach are expected to drive continued success for the segment over the balance of the year, resulting in mid-teens full year operating income growth.
"In total, strong operating segment performance, and a continued focus on efficiency and leverage reduction should drive continued strong operating income and EPS growth. For the third quarter, we expect adjusted diluted earnings per share to be between $0.25 and $0.30. Given our strong performance in the first half, and expectations for continued momentum over the balance of the year, we are increasing our full year guidance for adjusted diluted earnings per share to a range of $1.18-1.28 per share under our current corporate structure."
Original source: Dean Foods
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