Dean Foods (DF, Financial) is a leading food and beverage company and the largest processor and direct-to-store distributor of milk and other dairy products in the United States. Headquartered in Dallas, Texas, 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, and cultured products, Lehigh Valley Dairy Farms, Mayfield, McArthur, Meadow Gold, Oak Farms, 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. The company has more than 17,000 employees.
Fourth Quarter Results
For the full year, the company reported a net loss of $20 million, or $0.22 of loss per share, as compared to net income of $813 million, or $8.58 of earnings per diluted share for the full year 2013. On an adjusted basis, the company's net loss of $13 million, or $0.14 of loss per share for the full year 2014, compared to net income of $82 million, or $0.86 of earnings per diluted share for the full year 2013.
Fourth quarter 2014 net income was $5 million, or $0.06 of earnings per diluted share. On an adjusted basis, the fourth quarter 2014 net income was $7 million, or $0.08 of earnings per diluted share, compared to fourth quarter 2013 net income of $17 million, or $0.18 of earnings per diluted share.
Full year 2014 operating income totaled $9 million, compared to full year 2013 operating income of $131 million. Full year 2014 adjusted operating income totaled $36 million, compared to adjusted operating income of $228 million in the year-ago period.
Fourth quarter 2014 operating income totaled $8 million, compared to fourth quarter 2013 operating income of $35 million. Fourth quarter 2014 adjusted operating income totaled $26 million, compared to adjusted operating income of $48 million in the year-ago period.
"Our customers include many of the largest and best food retailers and food service companies and distributors in the country. We believe our relative scale affords us sustainable cost, service, and quality advantages allowing us to more effectively service these customers versus our competitors," said Gregg Tanner, Chief Executive Officer of Dean Foods. "And with Americans' increasing focus on health and wellness, I believe milk with its clean label, is well positioned as a fresh, delicious source of nutrition and protein for consumers of all ages. With the progress achieved in our cost reduction initiatives, we believe we are very well positioned and are excited about the future direction of the business."
Chris Bellairs, Chief Financial Officer of Dean Foods, added, "Full year results are reflective of just how difficult an operating environment we've been in, but after another quarter of sequentially improving gross profit and operating income per gallon, and with what we're seeing so far this year, we believe that we have the business headed in the right direction."
Total volume across all products was 683 million gallons for the fourth quarter of 2014, a 2% decline compared to total volume of 699 million gallons in the fourth quarter of 2013. For full year 2014, total volume for all products was 2.7 billion gallons, a 4% decline compared to total volume of 2.8 billion gallons in the year-ago period. Excluding the negative impact of the RFP-driven volume loss from a significant customer in 2013, Dean Foods' fluid milk volumes decreased 0.6% for the year, significantly better than the overall category.
The USDA recently reported industry fluid volumes for the months through October and restated certain published category data for prior periods. Industry fluid volume declines increased sequentially from a 3.5% decline in the second quarter to a 3.7% decline in the third quarter. As compared to the second quarter, Dean Foods' share of U.S. fluid milk sales volume remained flat at 35.9%, during the third quarter. For the quarter to date ending November 2014, industry fluid milk volumes declined approximately 4.5% year-over-year, on an unadjusted basis. On this same quarter to date basis, Dean Foods' share increased to 35.6%, from 35.4% in the fourth quarter of 2013.
The fourth quarter 2014 average Class I Mover, a measure of raw milk costs, was $23.59 per hundred-weight, an increase of 18% from the fourth quarter of 2013. The fourth quarter 2014 average was the second highest quarterly Class I Mover average in the history of the U.S. dairy industry, only $0.07 below the second quarter of 2014. The Class I Mover declined $3.95 per hundred-weight, to $18.58 per hundred-weight, in January 2015, and another $2.34, to $16.24 per hundred-weight, in February 2015.
"Fluid milk costs remained elevated during the quarter and continued to negatively impact the overall health of the category by causing volume declines beyond what we would consider a normal trajectory for the category," added Tanner. "Given strong global dairy production growth, and a number of other factors, Class I Mover declines, which began in earnest in December and are continuing into early 2015, should provide some support to our category and additional tailwinds to our business."
CASH FLOW
Consolidated net cash from continuing operations for the twelve months ended December 31, 2014, totaled $153 million. Free cash flow provided by continuing operations, which is defined as net cash provided by or used in continuing operations less capital expenditures, was $4 million for the twelve months ended December 31, 2014. 2014 free cash flow is impacted by current year tax payments or receipts associated with last year's Morningstar divestiture and WhiteWave spin-off and the net of tax effect of our $19 million Tennessee litigation payment, the second of four annual installments. On an adjusted basis, which excludes the impact of these items, and as outlined within the reconciliation tables below, Dean Foods generated $25 million of free cash flow for the twelve months ended December 31, 2014.
DEBT
Total debt at December 31, 2014, net of $16 million cash on hand, was approximately $901 million. The Company's funded net debt to EBITDA ratio calculated in accordance with its credit agreements was 4.48 times as of the end of the fourth quarter of 2014.
"With regard to our overall capital structure, during the first half of 2015, subject to market conditions and the receipt of appropriate approvals, we intend to optimize our liquidity and strengthen our financial position by opportunistically refinancing, or otherwise addressing, certain of our existing long-term debt, including our 7.0% senior notes due June 1, 2016. The specific timing, structure, and terms of such refinancing transactions have not yet been finalized," Bellairs added.
The company declared a quarterly dividend of $0.07 per share. The dividend is payable on March 26, 2015, to stockholders of record at the close of business on March 16, 2015.
FORWARD OUTLOOK
"Given the structural costs we have removed from our system and the multiple inherent benefits that come with cheaper raw milk, we expect our 2015 financial results to be substantially better than 2014," continued Tanner. "While we are currently experiencing cost declines across the entire U.S dairy commodity complex, we believe the dairy commodity environment continues to be volatile and unpredictable over the mid-term. Further, as we come out of this extended period of record high dairy commodity costs, it's uncertain what product pricing strategies the retailers will pursue for private label white milk and how the related consumer purchasing dynamics will be impacted, both of which could have a material impact on our full year 2015 results. Accordingly, for now, we are going to continue to provide specific earnings guidance for just the upcoming quarter."
"With expected volume declines of low-to-mid single digits, and taking other factors into account, we expect first quarter adjusted diluted earnings of between $0.12 and $0.22 per share. For the full year we expect capital expenditures to approximate $150 million," concluded Tanner.
To End
Dean Foods nourishes a strong and vibrant dairy industry. A dynamic company with an entrepreneurial spirit, it is the country's largest processor and distributor of dairy products. It has thousands of customer-focused employees who take great pride in delivering fresh, nourishing and quality products to American families - pure and simple. It is expected to create greater shareholder returns.
(Source: Company’s Website)
