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Dean Foods Announces First Quarter 2017 Results

Company Reaffirms Full-Year Adjusted EPS Guidance

DALLAS, May 9, 2017 /PRNewswire/ -- Dean Foods Company (NYSE: DF) today reported first quarter 2017 results. 

Highlights

  • Q1 net loss per diluted share was ($0.11) and adjusted net income per diluted share was $0.13
  • National launch of DairyPure sour cream driving product and package innovation into the category
  • Cultivating strong brands through Organic Valley joint venture and investment in Good Karma Foods Inc. ("Good Karma"), the leading producer of flax-based milk and yogurt
  • Robust commercial and cost productivity agenda ramping up through remainder of 2017
  • Reaffirm full-year 2017 adjusted earnings expectation of $1.35 to $1.55 per diluted share(1)

Chief Executive Officer Ralph Scozzafava said, "Our first quarter results across volume and earnings per share were in line with our expectations. Our commercial and cost productivity initiatives are ramping up, including the recent national launch of our new DairyPure sour cream. We are driving incremental distribution across our core portfolio of fluid products as well as expanding our footprint of our super-regional ice cream brands. In addition, we are enhancing our selling capabilities through a partnership with Acosta, a leading sales agency with extensive capability and expertise in products going through customer warehouses."

Business Updates

The company launched DairyPure sour cream in March as the national brand's most recent line extension. The $1.2 billion category presents a compelling growth opportunity for Dean Foods. Backed by DairyPure's Five-Point Purity Promise, DairyPure sour cream has a clean label, consumer-preferred product and packaging and is made with fresh cream from the company's local dairies. The product line includes three sizes with both regular fat and lighter versions.

Last week, the company announced an investment in and distribution deal with Good Karma, the leading producer of flax-based milk and yogurt products. The investment allows Dean Foods to diversify into plant-based dairy alternatives, and provides Good Karma the ability to more rapidly expand distribution and investment to build the brand along with subsequent product innovation. The non-dairy beverage category has experienced meaningful growth and increased household penetration with a growing number of consumers who prefer plant-based options. Good Karma is solidly positioned as a key brand across the core natural channel and is the second-fastest growing brand across its peer set in the plant-based milk category.

First Quarter 2017 Operating Results

Chief Financial Officer Chris Bellairs said, "For the first quarter, we delivered $28 million of net cash from operating activities and $19 million of free cash flow, representing ten consecutive quarters of positive free cash flow. We reduced our total net debt to $868 million, representing the third consecutive quarter of net debt reduction since our Friendly's acquisition."

Financial Summary *


Three Months Ended March 31

(In millions, except per share amounts)


2017


2016






Gross Profit





GAAP


$

462



$

504


Adjusted


$

465



$

505







Operating Income





GAAP


$

3



$

79


Adjusted


$

35



$

83







Interest Expense





GAAP


$

17



$

17


Adjusted


$

16



$

17







Net Income (Loss)





GAAP


$

(10)



$

39


Adjusted


$

12



$

42







Diluted Earnings (Loss) Per Share (EPS)





GAAP


$

(0.11)



$

0.43


Adjusted


$

0.13



$

0.45








* Adjustments to GAAP due to the exclusion of expenses, gains or losses associated with certain transactions and other non-recurring items are described and reconciled to the comparable GAAP amounts in the attached tables.



(1)

Please refer to "Forward Outlook" and "Non-GAAP Financial Measures" for additional information. We provide guidance on a non-GAAP basis and are unable to provide a full reconciliation to GAAP without unreasonable efforts as we cannot predict the amount or timing of certain elements which are included in reported GAAP results, including mark-to-market adjustments of hedging activities, asset impairment charges, and other non-recurring events or transactions that may have a significant impact to reported GAAP results.

Total volume across all products was 633 million gallons for the first quarter of 2017, a 1.3% decline compared to total volume of 641 million gallons in the first quarter of 2016.

Based on fluid milk sales data published by the USDA through February, fluid milk volume decreased 3.4% year-over-year quarter to date in the first quarter of 2017 on an unadjusted basis. However, when adjusting for the extra selling day in 2016 due to Leap Year, the category decline was 1.8%. On this same basis, Dean Foods' share of U.S. fluid milk volumes increased by 10 basis points year-over-year.

Raw milk costs in the first quarter of 2017 of $17.03 per hundred weight increased roughly 6% from the fourth quarter of 2016 and increased 18% from the first quarter of 2016.

Cash Flow

Net cash provided by continuing operations for the three months ended March 31, 2017 totaled $28 million. Free cash flow provided by continuing operations, which is defined as net cash provided by continuing operations less capital expenditures, was $19 million for the three months ended March 31, 2017, a $10 million decrease as compared to the prior year period. Capital expenditures totaled $8 million for the quarter.

Debt

Total outstanding debt at March 31, 2017, net of $32 million cash on hand, was approximately $868 million. The Company's net debt to bank EBITDA total leverage ratio, on an all-cash netted basis, increased slightly on a sequential basis to 2.09 times at the end of the first quarter 2017.

Forward Outlook

"As we look to the second quarter and the balance of 2017, we remain focused on executing our commercial and cost productivity initiatives. We believe our new product innovation, strategic partnerships, and focus on eliminating waste in our supply chain are key enablers to deliver sustainable long-term growth and financial results. I am confident in our organization's ability to deliver our plan, and I therefore want to reaffirm full-year adjusted diluted earnings per share guidance expectations of $1.35 to $1.55," concluded Scozzafava.

We provide guidance on a non-GAAP basis and are unable to provide a full reconciliation to GAAP without unreasonable efforts as we cannot predict the amount or timing of certain elements which are included in reported GAAP results, including mark-to-market adjustments of hedging activities, asset impairment charges, and other non-recurring events or transactions that may have a significant impact to reported GAAP results.

Non-GAAP Financial Measures

In addition to the results prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), we have presented certain non-GAAP financial measures, including Adjusted gross profit, Adjusted selling and distribution expenses, Adjusted general and administrative expenses, Adjusted total operating costs and expenses, Adjusted operating income, Adjusted interest expense, Adjusted net income (loss), Adjusted earnings (loss) per diluted share, Adjusted EBITDA, Free Cash Flow and total leverage ratio, each as described below.

This non-GAAP financial information is provided as supplemental information for investors and is not in accordance with, or an alternative to, GAAP. Additionally, these non-GAAP measures may be different than similar measures used by other companies.

We believe that the presentation of these non-GAAP financial measures, when considered together with our GAAP financial measures and the reconciliations to the corresponding GAAP financial measures, provides investors with a more complete understanding of the factors and trends affecting our business than could be obtained absent these disclosures. Our management uses these non-GAAP financial measures when evaluating our performance, when making decisions regarding the allocation of resources, in determining incentive compensation for management, and in determining earnings estimates.

A full reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures for the three months ended March 31, 2017 and 2016, is set forth in the tables herein.

Adjusted Operating Results

We have supplemented the presentation of our reported GAAP gross profit, selling and distribution expenses, general and administrative expenses, total operating costs and expenses, operating income, interest expense, net income (loss) and earnings (loss) per diluted share, with non-GAAP measures that adjust the GAAP measures to exclude the impact of the following (as applicable):

  • asset impairment charges;
  • incremental non-cash trademark amortization triggered by the launch of a national fresh white milk brand;
  • closed deal costs;
  • facility closing, reorganization and realignment costs;
  • debt issuance costs;
  • costs associated with the early retirement of long-term debt;
  • gains (losses) on the mark-to-market of our derivative contracts;
  • separation costs;
  • gains or losses related to discontinued operations and divestitures;
  • litigation settlements;
  • income tax impacts of the foregoing adjustments; and
  • adjustments to normalize our income tax expense at a rate of 38%.

We believe these non-GAAP measures provide useful information to investors by excluding expenses, gains or losses that are not indicative of the company's core operating performance. In addition, we cannot predict the timing and amount of gains or losses associated with such items. We believe these non-GAAP measures provide more accurate comparisons of our ongoing business operations and are better indicators of trends in our underlying business. In addition, these adjustments are consistent with how management views our business. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and evaluating the Company's ongoing performance. Further, adjusted gross profit and adjusted operating income are used by management to evaluate key performance indicators of brand mix and low cost, respectively.

Adjusted EBITDA

Adjusted EBITDA is defined as net income before interest expense, income tax expense, depreciation and amortization, as further adjusted to exclude the impact of the adjustments discussed under "Adjusted Operating Results" above (other than the normalized income tax rate, as Adjusted EBITDA excludes the full amount of income tax expense). This information is provided to assist investors in making meaningful comparisons of our operating performance between periods and to view our business from the same perspective as our management. We believe Adjusted EBITDA is a useful measure for analyzing the performance of our business and is a widely-accepted indicator of our ability to incur and service indebtedness and generate free cash flow. We also believe that EBITDA measures are commonly reported and widely used by investors and other interested parties as measures of a company's operating performance and debt servicing ability because such measures assist in comparing performance on a consistent basis without regard to capital structure, depreciation or amortization (which can vary significantly) and non-operating factors (such as historical cost).

Total Leverage Ratio

Our total leverage ratio is calculated as net debt divided by Bank EBITDA for the trailing four quarters. Net debt is calculated as consolidated funded indebtedness in accordance with our credit agreement, except on an all cash netted basis. Bank EBITDA is calculated as Adjusted EBITDA, as further adjusted to exclude certain non-cash and non-recurring or extraordinary expenses as permitted in calculating covenant compliance under our credit agreement. Management believes analysts and investors commonly use our total leverage ratio as an indicator of our ability to service existing debt and our liquidity.

Free Cash Flow

We define Free Cash Flow as net cash provided by operating activities from continuing operations less cash payments for capital expenditures. We believe Free Cash Flow is a meaningful non-GAAP measure that offers supplemental information and insight regarding the liquidity of our operations and our ability to generate sufficient cash flow to, among other things, repay debt, invest in our business and repurchase shares of our common stock. A limitation of Free Cash Flow is that it does not represent the total increase or decrease in the cash balance for the period.

Conference Call/Webcast

A webcast to discuss the Company's financial results and outlook will be held at 9:00 a.m. ET today and may be heard live by clicking the earnings button on the Company's website at http://www.deanfoods.com. A slide presentation will accompany the webcast.

About Dean Foods

Dean Foods is a leading food and beverage company and the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the United States. Headquartered in Dallas, Texas, the Dean Foods portfolio includes DairyPure®, the country's first and largest fresh, white milk national brand, and TruMoo®, the leading national flavored milk brand, along with well-known regional dairy brands such as Alta Dena®, Berkeley Farms®, Country Fresh®, Dean's®, Friendly's®, Garelick Farms®, LAND O LAKES®* milk and cultured products*, Lehigh Valley Dairy Farms®, Mayfield®, McArthur®, Meadow Gold®, Oak Farms®, PET®**, T.G. Lee®, Tuscan® and more. In all, Dean Foods has more than 50 national, regional and local dairy brands as well as private labels. Dean Foods also makes and distributes ice cream, cultured products, juices, teas, and bottled water. Almost 17,000 employees across the country work every day to make Dean Foods the most admired and trusted provider of wholesome, great-tasting dairy products at every occasion. For more information about Dean Foods and its brands, visit www.deanfoods.com.

*The LAND O LAKES brand is owned by Land O'Lakes, Inc. and is used by license.

**PET is a trademark of Eagle Family Foods Group LLC, under license.

Some of the statements made in this press release are "forward-looking" and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, including statements relating to: (1) our financial forecast, including projected sales (including specific product lines and the Company as a whole), total volume, price realization, profit margins, net income, earnings per share, free cash flow, our leverage ratio, and debt covenant compliance, (2) the Company's regional and national branding and marketing initiatives, (3) the Company's innovation, research and development plans and its ability to successfully launch new products or brands, (4) commodity prices and other inputs and the Company's ability to forecast or predict commodity prices, milk production and milk exports, (5) the Company's commercial and cost productivity initiatives, including plant closures and route reductions, and its ability to achieve expected savings, (6) planned capital expenditures, (7) the status of the Company's litigation matters,  (8) the Company's plans related to its capital structure, (9) the Company's dividend policy, (10) possible repurchases of shares of the Company's common stock, and (11) potential acquisitions. These statements involve risks and uncertainties that may cause results to differ materially from those set forth in this press release, including the risks disclosed by the Company in its filings with the Securities and Exchange Commission. Financial projections are based on a number of assumptions.  Actual results could be materially different than projected if those assumptions are erroneous.  The cost and supply of commodities and other raw materials are determined by market forces over which the Company has limited or no control. Sales, operating income, net income, debt covenant compliance, financial performance and earnings per share can vary based on a variety of economic, governmental and competitive factors, which are identified in the Company's filings with the Securities and Exchange Commission. The Company's ability to profit from its branding and marketing initiatives depends on a number of factors including consumer acceptance of its products.  The declaration and payment of cash dividends under the Company's dividend policy remains at the sole discretion of the Board of Directors and will depend upon its financial results, cash requirements, future prospects, restrictions in its credit agreement and debt covenant compliance, applicable law and other factors that may be deemed relevant by the Board. All forward-looking statements in this press release speak only as of the date of this press release.  The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in its expectations with regard thereto or any changes in the events, conditions or circumstances on which any such statement is based except as required by law.

CONTACT: Corporate Communications, Jamaison Schuler, +1-214-721-7766; or Investor Relations, Sherri Baker, +1-214-303-3438

 

DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)



Three Months Ended March 31


2017


2016

Net sales

$

1,995,686



$

1,878,828


Cost of sales

1,533,561



1,374,760


Gross profit

462,125



504,068


Operating costs and expenses:




Selling and distribution

345,196



332,887


General and administrative

99,536



85,151


Amortization of intangibles

5,155



6,325


Facility closing and reorganization costs, net

9,286



1,166


Total operating costs and expenses

459,173



425,529


Operating income

2,952



78,539


Other (income) expense:




Interest expense

17,464



16,876


Other income, net

(956)



(997)


Total other expense

16,508



15,879


Income (loss) before income taxes

(13,556)



62,660


Income tax expense (benefit)

(3,797)



23,459


Net income (loss)

$

(9,759)



$

39,201


Average common shares:




Basic

90,710



91,567


Diluted

90,710



92,168


Basic income (loss) per common share:




Net income (loss)

$

(0.11)



$

0.43


Diluted income (loss) per common share:




Net income (loss)

$

(0.11)



$

0.43



 

DEAN FOODS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)




March 31, 2017


December 31, 2016

ASSETS





 Cash and cash equivalents


$

31,582



$

17,980


 Other current assets


979,791



1,040,650


 Total current assets


1,011,373



1,058,630


 Property, plant and equipment, net


1,135,724



1,163,851


 Intangibles and other assets, net


378,643



383,746


Total


$

2,525,740



$

2,606,227


LIABILITIES AND STOCKHOLDERS' EQUITY





 Total current liabilities, excluding debt


$

684,471



$

706,981


 Total long-term debt, including current portion


891,677



886,051


 Other long-term liabilities


354,565



402,639


 Total stockholders' equity


595,027



610,556


Total


$

2,525,740



$

2,606,227



 

DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)




Three Months Ended March 31



2017


2016

Operating Activities





Net cash provided by operating activities


$

27,556



$

46,230







Investing Activities





Payments for property, plant and equipment


(8,372)



(17,067)


Proceeds from sale of fixed assets


1,001



3,209


Net cash used in investing activities


(7,371)



(13,858)







 Financing Activities





 Net proceeds (payments) from debt


4,700



(413)


 Payments of financing costs


(1,709)




 Cash dividends paid


(8,178)



(8,259)


 Issuance of common stock, net of share repurchases for withholding taxes


(1,396)



(663)


 Other




758


 Net cash used in financing activities


(6,583)



(8,577)


 Effect of exchange rate changes on cash and cash equivalents




66


 Increase in cash and cash equivalents


13,602



23,861


 Cash and cash equivalents, beginning of period


17,980



60,734


 Cash and cash equivalents, end of period


$

31,582



$

84,595



 

DEAN FOODS COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
(In thousands, except per share data)



Three Months Ended March 31, 2017




Asset write-
downs
and (gain) loss
on
 sale of assets


Facility closing
and
reorganization
costs, net


Mark-to-
market
on derivative
contracts


Other
adjustments


Income
 tax




GAAP


(b)


(c)


(d)


(e)


(f)


Adjusted*

Gross profit

$

462,125



$



$



$

3,209



$



$



$

465,334
















Selling and distribution

345,196







(1,142)







344,054
















General and administrative

99,536









(14,250)





85,286


Amortization of intangibles

5,155



(3,935)











1,220


General and administrative, including Amortization of intangibles

104,691



(3,935)







(14,250)





86,506
















Total operating costs and expenses

459,173



(3,935)



(9,286)



(1,142)



(14,250)





430,560
















Operating income

2,952



3,935



9,286



4,351



14,250





34,774
















Interest expense

17,464









(1,080)





16,384
















Net income (loss)

(9,759)



3,935



9,286



4,351



15,330



(11,149)



11,994
















Diluted earnings (loss) per share (g)

$

(0.11)



$

0.04



$

0.10



$

0.05



$

0.17



$

(0.12)



$

0.13

















Three Months Ended March 31, 2016




Asset write-
downs
and (gain) loss on
 sale of assets


Facility closing
and
reorganization
costs, net


Mark-to-
market
on derivative
contracts


Other
adjustments


Income
 tax




GAAP


(b)


(c)


(d)


(e)


(f)


Adjusted*

Gross profit

$

504,068



$



$



$

533



$



$



$

504,601
















Selling and distribution

332,887







2,678







335,565
















General and administrative

85,151













85,151


Amortization of intangibles

6,325



(5,589)











736


General and administrative, including Amortization of intangibles

91,476



(5,589)











85,887
















Total operating costs and expenses

425,529



(5,589)



(1,166)



2,678







421,452
















Operating income

78,539



5,589



1,166



(2,145)







83,149
















Interest expense

16,876









(218)





16,658
















Net income

39,201



5,589



1,166



(2,145)



218



(2,187)



41,842
















Diluted earnings per share

$

0.43



$

0.06



$

0.01



$

(0.02)



$



$

(0.03)



$

0.45




*

See Notes to Earnings Release Tables

 

DEAN FOODS COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES*
(Unaudited)
(In thousands, except ratio data)




Three Months Ended March 31


Trailing Twelve
Months Ended
 March 31,



2017


2016


2017

Reconciliation of Net Income (Loss) to Adjusted EBITDA and Bank EBITDA

Net income (loss)


$

(9,759)



$

39,201



$

70,969


Interest expense


17,464



16,876



67,383


Income tax expense (benefit)


(3,797)



23,459



54,778


Depreciation and amortization


41,881



43,626



170,872


Closed deal costs (a)






4,926


Facility closing and reorganization costs, net (c)


9,286



1,166



16,839


Mark-to-market on derivative contracts (d)


4,351



(2,145)



(6,302)


Other adjustments (e)


14,250





26,499


 Adjusted EBITDA


$

73,676



$

122,183



405,964









 Non-cash share-based compensation expense






9,468


 Bank EBITDA






$

415,432















March 31, 2017

Reconciliation of net debt and total leverage ratio

Total long-term debt, including current portion

$

891,677


Unamortized discounts and debt issuance costs

8,103


Cash and cash equivalents

(31,582)


Net debt

$

868,198


Bank EBITDA

415,432


 Total leverage ratio

2.09













Three Months Ended March 31





2017


2016

Reconciliation of Free Cash Flow provided by continuing operations

Net cash provided by operating activities

$

27,556



$

46,230


Payments for property, plant and equipment

(8,372)



(17,067)


  Free Cash Flow provided by continuing operations

$

19,184



$

29,163




*

See Notes to Earnings Release Tables


 

Notes to Earnings Release Tables


For the three months ended March 31, 2017 and 2016, the adjusted results and certain other non-GAAP financial measures differ from the Company's results under GAAP due to the exclusion of expenses, gains or losses associated with certain transactions and other non-recurring items that we believe are not indicative of our core operating results. For additional information on our non-GAAP financial measures, see the section entitled "Non-GAAP Financial Measures" in this release.



(a)  

The adjustment reflects the elimination of expenses related to the acquisition of Friendly's Ice Cream Holdings Corp. completed on June 20, 2016 of $4.9 million for the trailing twelve months ended March 31, 2017.



(b)  

In conjunction with our decision to launch DairyPure in the first quarter of 2015, we reclassified certain of our indefinite-lived trademarks to finite-lived, resulting in a triggering event for impairment testing purposes. The related adjustment reflects the elimination of amortization expense recorded on these finite-lived trademarks of $3.9 million and $5.6 million for the three months ended March 31, 2017 and 2016, respectively.



(c)  

The adjustment reflects the elimination of severance charges and non-cash asset impairments, net of (gains) losses on related asset sales, for approved facility closings and restructuring plans.



(d)  

The adjustment reflects the elimination of the (gain) loss on the mark-to-market of our commodity derivative contracts. All of our commodity derivative contracts are marked to market in our statement of operations during each reporting period with a corresponding derivative asset or liability on our balance sheet.



(e)  

The adjustment reflects the elimination of the following:


i.

A charge related to litigation settlements reached in the three months ended March 31, 2017;


ii.

The write off of unamortized deferred financing costs of $1.1 million in connection with the January 4, 2017 amendments to our senior secured revolving credit facility and receivables securitization facility in the three months ended March 31, 2017; and


iii. 

 

Interest accretion in connection with the settlement of a previously disclosed dairy farmer class action lawsuit filed in the United States District Court for the Eastern District of Tennessee.  The Court granted final approval of the settlement agreement on June 15, 2012 and the final installment payment was made in June of 2016.



(f)    

The adjustment reflects the income tax impact of adjustments (b) through (e) and an adjustment to our income tax expense (benefit) to reflect income tax at a tax rate of 38%, which we believe represents our normalized long-term effective tax rate as a U.S. domiciled business.



(g)  

Includes an adjustment to diluted shares outstanding to reflect an add-back of approximately 566 thousand dilutive shares, which were anti-dilutive for GAAP purposes.

 

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SOURCE Dean Foods Company