Dean Foods Q3 Results Beat Estimates, Provides Outlook Above View

(RTTNews) - Dean Foods Co. (DF) on Monday reported a loss for the third quarter, reflecting higher costs, including the cost of raw milk, that offset an increase in sales.

However, the dairy company's adjusted earnings and revenue for the quarter beat analysts' expectations. Looking ahead, Dean Foods provided earnings guidance for the fourth quarter and fiscal 2014 above Street view.

Dallas, Texas-based Dean Foods' net loss for the third quarter was $15.97 million or $0.17 per share, compared to net income of $415.12 million or $4.35 per share in the prior-year quarter.

Excluding items, adjusted net loss for the latest quarter was $2.82 million or $0.03 per share, compared to adjusted net profit of $11.09 million or $0.12 per share in the same period last year. On average, 12 analysts polled by Thomson Reuters expected the company to report loss of $0.13 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter increased 7 percent to $2.37 billion from $2.20 billion in the same quarter last year, and beat analysts' consensus revenue estimate of $2.35 billion.

Cost of sales for the quarter rose 11 percent from the year-ago period to $1.96 billion.

The company noted that the latest quarter's average Class I Mover, a measure of raw milk costs, was $23.51 per hundred-weight, up 24 percent from the year-ago quarter. The quarter's average was the second highest quarterly Class I Mover average in the history of the U.S. dairy industry.

Meanwhile, total operating costs and expenses for the quarter decreased less than 1 percent to $417.99 million from $418.62 million in the prior-year quarter.

Dean Foods noted that its unadjusted fluid milk volumes declined 1 percent on a year-over-year basis and continued to reflect the negative impacts of the RFP-driven volume loss from a significant customer in 2013. Excluding the impact of the RFP, the company's fluid milk volumes decreased 0.6 percent in the quarter.

Dean Foods noted that the USDA has not published category data for any of the months in the third quarter. The company said that if the USDA data were to report a category decline of 3 percent, its share would approximate 35.6 percent in the quarter. This would represent a 0.7 percent increase in the company's share of the fluid milk category since bottoming out in the third quarter of 2013, at 34.9 percent.

Looking ahead to the fourth quarter, Dean Foods forecast adjusted earnings in a range of $0.05 to $0.15 per share. Analysts expect the company to report loss of $0.02 per share for the quarter.

Subject to obtaining board approval, the company intends to redeem the $23.8 million of remaining senior notes due 2018 during the fourth quarter.

For fiscal 2014, Dean Foods now forecasts adjusted loss per share in a range of $0.06 to $0.16 per share. While reporting its financial results for the second quarter in August 2014, Dean Foods had withdrawn its earnings forecast for fiscal 2014, citing a continued unpredictable and volatile dairy commodity environment.

Street expects the company to report loss of $0.33 per share for the year.

Gregg Tanner, chief executive officer of Dean Foods said, "The dairy commodity environment remains extremely challenging and for the fourth quarter we expect raw milk costs will remain stubbornly high despite continued strong global production growth and waning demand. We don't expect much relief on raw milk costs until early 2015, but we do expect significant butterfat cost declines at the end of the fourth quarter."

Dean Foods noted that industry volumes remain soft and it expects its fourth-quarter volumes to be down low single digits, as compared to prior year, but with a continued improvement to net price realization.

The company added that as it moves past its extended period of heavy plant closure activity and realize further costs reductions, it believes the rate of per-unit production and distribution costs will continue to decline and flatten from a year over year basis.

DF closed Friday's trading at $14.42. In Monday's pre-market trades, the stock is up $1.43 or 9.92 percent to $15.85.