February 19, 2013

 

Dean Foods Company announced on Wednesday (Feb 13) its fourth quarter and full year 2012 results with fourth quarter 2012 diluted earnings per share of US$0.20, compared to a fourth quarter 2011 loss per share of $0.05.

 

These financial results reflect both the initial public offering of The WhiteWave Foods Company in October 2012, which minority interest is now reflected as a non-controlling interest, and the sale in January 2013 of the Company's Morningstar business, which is now reflected in discontinued operations.  On a pro forma adjusted basis, including the Morningstar business in continuing operations and eliminating the non-controlling interest of The WhiteWave Foods Company that the Company does not own, as well as certain separation costs and certain other adjustments, fourth quarter 2012 adjusted diluted earnings per share were $0.40, a 48% increase from the US$0.27 adjusted diluted earnings per share in the prior year's fourth quarter, and well above the Company's November 2012 guidance for the fourth quarter.

 

Fourth quarter consolidated operating income totalled US$83 million, compared to a consolidated operating loss of US$50 million in the fourth quarter of 2011. Pro forma adjusted fourth quarter consolidated operating income in 2012 totalled US$157 million, a 16% increase from the US$135 million reported in the fourth quarter of 2011.

 

"The fourth quarter marked the successful conclusion of a very strong year," said Gregg Tanner, Chief Executive Officer of Dean Foods. Net income attributable to Dean Foods totalled US$37 million for the fourth quarter of 2012, compared to a net loss of US$10 million in the prior year fourth quarter. Pro forma adjusted net income for the fourth quarter was US$74 million, a 47% increase from $51 million in the fourth quarter of 2011.

 

Net sales for the fourth quarter of 2012 totalled US$3.0 billion, compared to US$2.9 billion of net sales in the fourth quarter of 2011, reflecting strong sales growth at WhiteWave and the pass-through of higher commodity costs at Fresh Dairy Direct. Fourth quarter Fresh Dairy Direct operating income was US$106 million, as compared to US$107 million in the fourth quarter of 2011. Fourth quarter Fresh Dairy Direct pro forma adjusted operating income was US$102 million, a 2% increase from US$99 million in the fourth quarter of 2011.

 

While still down on an over-year basis, industry volume performance improved in the fourth quarter from earlier in 2012. On an adjusted basis, as defined by the USDA, which adjusts for the quality and number of days in the period, Fresh Dairy Direct fluid milk volumes declined 0.8% on an over-year basis. This compares to the balance of the industry that experienced a volume decline of approximately 0.9% on an over-year basis, based on USDA data and Company estimates.

 

The pass-through of higher over-year commodity costs resulted in Fresh Dairy Direct net sales of US$2.42 billion, a 1.5% increase from US$2.39 billion in net sales for the fourth quarter of 2011. The fourth quarter 2012 average Class I Mover, a measure of raw milk costs, was US$20.32 per hundred-weight, an increase of 8% from the fourth quarter of 2011, and 23% above the third quarter 2012 level.

 

With strong 2012 results, a strengthened balance sheet and a narrowed strategic focus, Dean Foods enters 2013 with considerable momentum across many fronts, but also some challenges.  Management expects consolidated operating income growth in the low-to-mid single digits, as compared to a rebased 2012 operating income of US$257 million that reflects the anticipated future structure of the Company assuming a full separation of WhiteWave had occurred on January 1, 2012 and reflects the sale of Morningstar.

 

The Company's focus on volume, cost and pricing effectiveness has yielded significantly improved results and renewed momentum in the business. However, the fluid milk industry remains competitive. A recent RFP for private label milk with a significant Dean Foods customer resulted in a loss of a portion of that customer's business which will begin to be reflected in the second quarter of 2013. Dean Foods' management expects 2013 total fluid milk volume to decline in the low-single digits.

 

Operating income at FDD is forecasted to decline in the mid-single digits from the rebased results. This decline is expected to be more than offset by substantially reduced corporate costs, resulting in a low-to-mid single digit increase in consolidated operating income compared to 2012's rebased results. The Company also noted that, with the completed sale of Morningstar and pending separation of WhiteWave from Dean Foods, the Company expects to consolidate the reporting of FDD and corporate in 2013.