Dean Foods Company
) reported adjusted earnings from continuing operations of 13
cents per share for the second quarter of 2013, which is within
the company's own guidance range of 11-15 cents. However, the
quarterly adjusted earnings fell short of the Zacks Consensus
Estimate by a penny.
On a year-over-year basis, the company's adjusted earnings
came a penny ahead of the year-ago comparable quarter's earnings
of 12 cents per share. The improved bottom-line result was mainly
driven by Dean Foods' sustained focus on cost control and better
This Zacks Rank #3 (Hold) company's adjusted earnings does not
include the income from its former subsidiary,
The WhiteWave Foods Company
). In Jul 2013, Dean Foods successfully completed the spin-off of
its subsidiary. We believe that such strategic moves will boost
the company's shareholder value and offer growth opportunities
for both Dean Foods and WhiteWave.
On a reported basis, the company registered a loss of 17 cents
per share from continuing operations compared with earnings of 10
cents posted in the year-ago comparable quarter.
Quarter in Detail
Dean Foods' adjusted net sales inched down 0.7% year over year
to $2,227.5 million compared with net sales of $2,244.2 million
in the comparable prior-year quarter. As per the data from USDA
and the estimates of the company, the marginal fall in the top
line is owing to a decline in the overall industry volumes for
fluid milk and a fall of 140 basis points in the company's market
share for U.S. fluid milk to 36.4%. Moreover, the company's
quarterly net sales were almost in line with the Zacks Consensus
Estimate of $2,228.0 million.
Adjusted operating income for the quarter decreased 9.4% to
$64.7 million from the prior-year quarter's $71.7 million.
Consequently, Dean Foods' adjusted operating margin for the
quarter contracted 30 basis points to 2.9% compared with 3.2% in
the prior-year quarter.
The year-over-year decline in operating income was primarily
due to reduced sales and higher raw milk costs, partially offset
by the company's cost saving initiatives. The raw milk cost of
Class I Mover registered a year-over-year increase of 16% to
$18.12 per hundred-weight.
Dean Foods is striving to achieve its targeted goal of saving
costs worth $120 million in fiscal 2013. The cost saving
initiatives announced in the fourth quarter of fiscal 2012
include eight to twelve or 10%-15% of the company's manufacturing
facilities, expected to be achieved by mid 2014.
The company ended the quarter with cash and cash equivalents
of $26.0 million, long-term debt of $1,240.1 million and
shareholders' equity of $661.5 million. During the first six
month of 2013, the company used $230.9 million of net cash for
continuing operations, while free cash flow used in continuing
operations was $294.1 million.
Further, the company remains focused on curtailing its overall
leverage. As of the end of the first quarter, the company's
funded debt to EBITDA ratio, as defined by its credit agreements,
was 2.69 times, lower than its maximum leverage covenant ratio of
5.25 times, which suggests that the company possesses adequate
financial flexibility to service its debt.
Looking at the current industry volume trends, Dean Foods
expects volumes to decline more than anticipated.
However, the company is focusing on efficiency and leverage
reduction to drive both operating income and earnings per share.
The company anticipates operating income to rise in the
low-single digit range, lower than the previous guidance range of
low-to-mid single digit growth. Moreover, EBITDA for 2013 is
expected to range between $410 million and $430 million.
Further, Dean Foods narrowed its earnings guidance range for
full-year 2013 to 47-53 cents per share from 45-55 cents guided
earlier. For the third quarter, the company anticipates adjusted
earnings in the range of 5 cents to 8 cents per share.
Other Stocks Worth Considering
Besides Dean Foods, other stocks worth considering in the food
category business include
Boulder Brands, Inc.
Kraft Foods Group, Inc.
). Both the stocks carry a Zacks Rank #2 (Buy).
BOULDER BRANDS (BDBD): Free Stock Analysis
DEAN FOODS CO (DF): Free Stock Analysis
KRAFT FOODS GRP (KRFT): Free Stock Analysis
WHITEWAVE FOODS (WWAV): Free Stock Analysis
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