Dean Foods Posts Loss In Q2, Sees Q3 Earnings Below View

(RTTNews) - Dean Foods Co. (DF) on Thursday reported a loss for the second quarter, hurt by lower milk volume, impact of divestments, as well as flat sales. Excluding items, the company reported a profit for the quarter.

Looking ahead, the dairy company forecast earnings for the third quarter below analysts' expectations and narrowed its fiscal 2013 earnings outlook. The company's shares are down more than 8 percent in the regular trading session.

Gregg Tanner, chief executive officer of Dean Foods said, "Results for the second quarter were in-line with expectations. We successfully offset the majority of the volume deleverage associated with lower volumes in the quarter through execution behind our accelerated cost reduction and productivity agenda."

Dallas, Texas-based Dean Foods' second-quarter net loss was $56.87 million or $0.30 per share, compared to net loss of $56.17 million or $0.30 per share in the year-ago period.

The latest quarter's results include loss from discontinued operations of $21.76 million or $0.13 per share. The company completed the sale of its Morningstar division in January 2013 and the spin-off of WhiteWave Foods Co. in May 2013.

Adjusted net income for the quarter was $24.20 million or $0.13 per share, compared to pro forma adjusted net income of $23.05 million or $0.12 per share in the same period last year.

On average, nine analysts polled by Thomson Reuters expected the company to report earnings of $0.14 per share for the quarter. Analysts' estimates typically exclude one-time items.

Net sales for the quarter were flat with the year-ago period at $2.23 billion. Analysts had a consensus revenue estimate of $2.25 billion.

Total operating costs and expenses for the quarter declined 9 percent from the prior-year period to $428.72 million. The latest quarter's results include litigation settlements of $1.02 million, impairment charges of $3.60 million and other operating loss of $2.21 million.

Dean Foods' share of U.S. fluid milk sales volume in the quarter declined to 36.4 percent from 37.8 percent in the preceding first quarter. Industry fluid milk volumes declined about 2.1 percent year-over-year in the second quarter on an unadjusted basis, based on USDA data and company estimates.

On the same basis, Dean Foods' unadjusted fluid milk volumes declined 6 percent on a year-over-year basis. The company estimates that more than two-thirds of the decline in its fluid milk volumes was attributable to the transition of volume to other providers related to the business losses.

On July 25, Dean Foods announced the closing of the offering of 34.4 million shares of Class A common stock of WhiteWave Foods, including about 4.5 million shares sold pursuant to the underwriters' over-allotment option. Following the closing of the offering, Dean Foods no longer holds any shares of WhiteWave common stock.

Looking ahead to the third quarter, Dean Foods forecast adjusted earnings of $0.05 to $0.08 per share. Analysts expect the company to report earnings of $0.11 per share for the quarter.

Tanner said, "With the full-quarter impact of the RFP-related volume reduction in the third quarter, continued soft category trends and normal seasonality in the business, we expect the third quarter to be the most challenging of the year."

For fiscal 2013, Dean Foods narrowed its outlook for adjusted earnings to a range of $0.47 to $0.53 per share from the prior range of $0.45 to $0.55 per share. Street expects the company to earn $0.53 per share for the year.

Tanner added, "Turning to the forward outlook, we believe the momentum behind our cost reduction activities will allow us to deliver solid full-year results. This is despite a challenging environment that includes fluid milk category volumes that appear to be a bit softer than we originally anticipated."

Dean Foods said it continues to make solid progress against its target of $120 million of cost savings in 2013, including the planned closure of eight to twelve of its manufacturing facilities by mid-2014. The company has closed or announced the closure of eight plants since its accelerated cost reduction initiative began in the fourth quarter of 2012.

In Thursday's regular trading session, DF is trading at $10.10, down $0.93 or 8.39 percent on a volume of 951,030 shares.