Dean Foods Company
) reported adjusted earnings from continuing operations of 12
cents per share for the third quarter of 2013, which was within
the company's own guidance range of 5-8 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
were below the year-ago comparable quarter figure of 14 cents per
share. The lackluster bottom-line results were mainly due to rise
in raw milk costs.
This Zacks Rank #3 (Hold) company's adjusted earnings do not
include the income from its former subsidiary,
The WhiteWave Foods Co.
). 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's earnings came in at $4.35
per share from continuing operations as against a loss of 2 cents
in the year-ago comparable quarter.
Quarter in Detail
Dean Foods' adjusted net sales declined 2.0% year over year to
$2,200.9 million from $2,246.5 million in the comparable
prior-year quarter. As per the data from the U.S. Department of
Agriculture (USDA) and the estimates of the company, the marginal
fall in the top line was owing to a decline in the overall
industry volumes for fluid milk and a fall of 150 basis points
(bps) in the company's market share for U.S. fluid milk to 34.9%.
Moreover, the company's quarterly net sales were slightly higher
than the Zacks Consensus Estimate of $2,190.0 million.
Adjusted operating income for the quarter decreased 26.7% to
$41.6 million from the prior-year quarter figure of $56.8
million. Consequently, Dean Foods' adjusted operating margin for
the quarter contracted 60 bps to 1.9% compared with 2.5% in the
The year-over-year decline in operating income was primarily
due to reduced sales and higher raw milk costs, which were
partially mitigated by the company's cost saving initiatives. The
raw milk cost of Class I Mover registered a year-over-year
increase of 15% to $18.98 per hundred-weight.
Dean Foods is striving to achieve its targeted goal of
generating cost savings of $120 million in fiscal 2013. The cost
cutting measures that were announced in the fourth quarter of
fiscal 2012 pertain to eight to twelve manufacturing facilities
or 10%-15% of the company's total manufacturing facilities. The
company expects to reap the success of these measures by mid
The company ended the quarter with cash and cash equivalents
of $360.6 million, long-term debt of $1,031.6 million and
shareholders' equity of $706.1 million. During the first nine
months of 2013, the company spent $349.0 million of net cash for
continuing operations, while free cash flow used in continuing
operations was $244.5 million.
Further, the company remains focused on curtailing its overall
leverage. At the reported quarter-end, the company's funded
debt to earnings before interest, taxes, depreciation and
amortization (EBITDA) ratio, as defined by its credit agreements,
was 1.64 times, which was much lower than its maximum leverage
covenant ratio of 5.25 times. This indicates the company's
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.
Additionally, EBITDA for 2013 is expected to range between $391
million and $400 million.
Further, Dean Foods expects its full-year 2013 earnings to
come in the range of 85 cents to 91 cents per share. For the
fourth quarter, the company forecasts adjusted earnings in the
range of 17 cents to 23 cents per share.
Other Stocks Worth Considering
Better-placed stocks in the food category business include
Pinnacle Foods Inc.
The J. M. Smucker Co.
). Both of these carry a Zacks Rank #2 (Buy).
DEAN FOODS CO (DF): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
SMUCKER JM (SJM): Free Stock Analysis Report
WHITEWAVE FOODS (WWAV): Free Stock Analysis
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