First Quarter 2015 Earnings. May 11, 2015

Transcription

1 First Quarter 2015 Earnings May 11,

2 Forward-Looking Statements Some of the statements made in this presentation 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) projected sales (including specific product lines and the company as a whole), price realization, profit margins, net income, earnings per share, free cash flow and debt covenant compliance, (2) our regional and national branding initiatives, (3) our innovation, research and development plans and our ability to successfully launch new products or brands, (4) commodity prices and other inputs and our ability to forecast or predict commodity prices, milk production and milk exports, (5) our cost-savings initiatives, including plant closures and route reductions, and our ability to achieve expected savings, (6) our planned capital expenditures, (7) the status of our litigation matters, (8) our plans related to our capital structure, (9) our dividend policy, and (10) possible repurchases of shares of our common stock. These statements involve risks and uncertainties that may cause results to differ materially from those set forth in this presentation. 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 we have limited or no control. Sales, operating income, net income, debt covenant compliance, financial performance and adjusted earnings per share can vary based on a variety of economic, governmental and competitive factors, which are identified in our filings with the Securities and Exchange Commission, including our most recent Forms 10-K and 10-Q (which can be accessed on our website at or on the website of the Securities and Exchange Commission at Our ability to profit from our branding initiatives depends on a number of factors including consumer acceptance of our products. The declaration and payment of cash dividends under our dividend policy remains at the sole discretion of the Board of Directors or a committee thereof and will depend upon our financial results, cash requirements, future prospects, restrictions in our credit agreement and debt covenant compliance, applicable law and other factors that may be deemed relevant by the Board or such committee. All forward-looking statements in this presentation speak only as of the date of this presentation. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in our expectations with regard thereto or any changes in the events, conditions or circumstances on which any such statement is based. Certain non-gaap financial measures contained in this presentation, including adjusted diluted earnings per share, free cash flow, adjusted EBITDA, consolidated adjusted operating income and consolidated adjusted net income, are from continuing operations and have been adjusted to eliminate the net expense or net gain related to certain items identified in our earnings press release. A full reconciliation of these measures calculated according to GAAP and on an adjusted basis is contained in such press release, which is publicly available on our website at 2

3 Q Highlights Adjusted EPS of $0.24, better than previous guidance; 3rd consecutive quarter of improving operating results Adjusted operating income of $0.08 per gallon Comprehensive debt refinancing and strong free cash flow enhances liquidity and financial flexibility Q1 15 Q1 14 Q1 YoY Adj. Operating Income* $52 $7 $45 Adj. Net Income* $22 ($5) $27 Adj. Diluted EPS* $0.24 ($0.05) $0.29 FCF* $138 $5 $133 $ in millions, except per share data DairyPure launch brings long term incremental benefits and opportunities for consumers, category, customers, and company 3 *See Reconciliation of Non-GAAP Financial Measures in the press release earnings tables for computation

4 Dairy Commodity Update U.S. Milk Production U.S. Exports Production is expanding with increases in both herd size and yield offsetting drought in CA Exports down dramatically as a result of China and Russia demand contraction 4 Sources: Global Dairy Trade auction ( monthly CME spot prices, USDA NASS, USDA FAS

5 Dairy Commodity Update 1,200 1, Dairy Stocks Volume (MM lbs): Mar 2015 vs. PY +44MM U.S. Stocks (Mar. 2015) -8MM Mar-14 Mar MM Cheese Butter Non Fat Dry Milk U.S./International Price Comparison International Prices Mar 15 Apr 15 % Change SMP $ 1.24 $ % WMP $ 1.33 $ % Cheddar $ 1.42 $ % Butter (80% equivalent butter) $ 1.57 $ % U.S. Dairy Prices Mar 15 Apr 15 % Change Premium over International Prices NFDM $ 1.01 $ % -8% Cheddar Cheese Blocks $ 1.55 $ % 21% Butter $ 1.72 $ % 34% Expect seasonal inventory buildup to continue in Q2 Weakening currencies and demand side constraints could mean reduced global prices in upcoming months 5 Sources: Global Dairy Trade auction ( monthly CME spot prices, USDA NASS, USDA FAS

6 $18.33 $18.12 $16.79 $15.82 $18.98 $19.92 Forecast $22.38 $23.66 $23.51 $23.59 $16.24 $15.56 $15.50 $15.83 $16.13 $18.58 $21.48 $22.02 $23.64 $23.65 $22.86 $23.02 $24.47 $23.87 $23.63 $22.53 Forecast $24.19 $24.06 Significant Declines in Raw Milk Costs Q1 costs down 29% vs. Q4 Class I Mover (per cwt) January 2014 June 2015 (monthly) June -29% YoY Q1 costs down 25% YoY Q2 costs leveling and stabilizing Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Quarterly Average FY 13: $18.84; +8% FY 14: $23.29; +24% Q2-33% YoY 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 6

7 Margin over Milk Expands Margin over milk inflates with significant Class I raw milk cost declines March s margin over milk declined 2 cents despite 6 cent Class I decline, on a per gallon basis Class I Raw Milk Price per Gallon $2.20 $2.00 $1.80 Private Label Retail Price Less Class I Raw Milk Cost Conventional White Milk Gallons Class I Raw Milk Price March s Margin over Milk: $1.71 Margin over Milk $1.80 $1.75 $1.70 $1.65 $1.60 $1.60 $1.55 $1.50 $1.40 $1.45 $1.20 $1.40 $1.35 $1.00 $ Source: IRI, USDA. Class I mover converted at 11.6 gallons per cwt Chart is a 90 day rolling average

8 (millions of gallons) Total Volume Performance YoY Volume Growth Volume performance in line with expectations and category Q1 2014: -6% Q2 2014: -4% Q3 2014: -2% Q4 2014: -2% Q1 2015: -3% Impacted by high, but falling prices at retail Q Q Q Q Q Q Q Q Q Note: Total Dean Foods volume excluding WhiteWave and Morningstar

9 34.9% 35.4% 36.3% 35.7% 35.9% 35.9% 35.7% 35.5% 37.8% Fluid Milk Share Performance; Dean Foods Share Category volume declines are improving, but still above historical norm 42.0% 40.0% 38.0% 36.0% Dean Fluid Milk Share USDA Fluid Milk Volume YoY IRI Fluid Milk Volume YoY 4.0% 3.0% 2.0% 1.0% Expect volume declines to continue in line with recent trends 34.0% 32.0% 30.0% -2.1% -1.9% -1.4% -1.2% -1.5% 0.0% -1.0% -2.0% 28.0% 26.0% 24.0% -3.2% -3.9% -4.5% -3.2% -2.8% -3.5% -4.2% -3.7% -3.7% -3.4% -4.2% -3.1% -3.1% -3.0% -4.0% -5.0% 22.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1-6.0% Source: IRI through March 29, 2015 Based on USDA data through January 2015

10 Branded White and Flavored Milk Performance Price gap vs. private label expanded to $0.78 in Q1 Branded white milk portfolio profitability in line with longer term norms, despite volumes down 3% Brand mix essentially flat sequentially and improves year over year, with lower prices at retail Year-over-year, flavored milk volumes down less than 1%, noticeable improvement TruMoo flavored milk national brand is more than $700 million across all channels 10 *As defined by IRI FOOD (Grocery) Channel

11 DairyPure: What it Means First and largest fresh, white milk national brand National brand endorsed by our regional brands A game changer for our company Expect to reinvigorate the dairy case 11

12 DairyPure: A Winning Proposition Only company able to offer a national fresh dairy solution while continuing to be endorsed by regional brands Consumer Category Customers Company On trend with desire for clean label, local, fresh, protein- and nutrient-packed products Not just new label Five Point Purity checklist are messages consumers value Fills a void in the category National platform to articulate health & nutritional benefits Elevates fresh, pure, white milk in the minds of consumers Single UPC codes simplifies, reduces administrative costs Benefits of national brand while retaining regional brand equity Speak with one voice via national media -- efficiencies in marketing spend Opportunities to cross promote with various CPG companies National platform for future innovation 12

13 DairyPure: Rollout Timeline Pre April 2015 May/June & beyond Launched TruMoo flavored milk national brand TruMoo line extensions Grew TruMoo to $700 million largest flavored milk brand in the country Tested DairyPure concept in New England Aligned regional labels to consistent look and feel Overlaid DairyPure name with regional brands Began shipping DairyPure to stores National DairyPure launch May 4 National advertising and promotion Promotional pricing/ couponing Rollout DairyPure creams, school milk and buttermilk Incremental opportunities and benefits of a national brand 13

14 YoY Growth (%) Total Net Landed* Costs Total Net Landed Cost per Gallon YoY Growth (%) Q1 rate of year-over-year landed cost per gallon largely reflective of volume deleverage Expect higher cost per gallon growth to continue through 2015 as volume deleverage out paces the benefits we realize from plant closures, capital related efficiencies Still driving FY cost productivity agenda across procurement, operations and logistics, but it may take longer than expected to see flat growth % Q % Q % Q % 4.2% 2.6% 0.2% Q4 13 Q1 14 Q2 14 Q3 14 YoY Change on CPG 1.3% Q % Q *Reflects conversion and logistics costs net of functional revenue and excluding incentive compensation and certain other insurance adjustments

15 Per gallon Adjusted Operating Income* Q1 adjusted operating income of $52 million, 8 cents a gallon Progress behind price realization continues Q1 gross margin per gallon improved 7.1 cents, sequentially Q1 gross margin per gallon up 19% versus prior year (6) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q $ millions, except per gallon 15 * See Reconciliation of Non-GAAP Financial Measures in the press release earnings tables for computation

16 Q Adjusted P&L* $ millions, except EPS Q1 15 $ B/(W) vs Q1 14 Adjusted Gross Profit $477 $61 Selling & Logistics G&A 88 (19) Total Adjusted Operating Costs 425 (16) Consolidated Adjusted Operating Income Adjusted EBITDA Interest Expense 16 (2) 38% 14 (16) Adjusted Diluted EPS $0.24 $0.29 $ in millions, except EPS 16 * See Reconciliation of Non-GAAP Financial Measures in the press release earnings tables for computation

17 Strong Free Cash Flow* Performance Strong free cash flow performance reflects improving operating results, commodity cost declines and lower working capital Q includes $56 million federal tax refund Net Cash Provided by Continuing Operations Net Capital Expenditures Three months ended March 31, 2015 March 31, 2014 $158 $33 $20 $28 Free Cash Flow Provided by Continuing Operations $138 $5 $ in millions 17 * See Reconciliation of Non-GAAP Financial Measures in the press release earnings tables for computation

18 Net Debt Levels Decline Q1 net debt declined to $823 million Net Debt ($ Millions) Q1 total leverage improved more than a full turn to 3.35 times net debt to EBITDA* Sequential improvement to net debt reflects rapid deleveraging due to improving operating results and strong free cash flow performance FY Q1 Q2 Q3 Q4 Q x 2.75x 3.62x 4.23x 4.48x 3.35x Total Net Debt/EBITDA* 18 *Not a financial covenant but calculated in accordance with Total Net Leverage Ratio per our credit agreement

19 Debt Refinancing Recap February - issued $700 million of 6.50% high yield bonds due 2023 March - completed refinancing of optimized $1 billion in multi-year revolving commitments More than doubled average weighted debt maturities, enhanced accessible liquidity, improved covenant flexibility, and reduced pricing $ millions $800 $700 $600 $500 $400 $300 $200 $100 $0 Q (Pre Debt Refinancing) $ millions $800 $700 $600 $500 $400 $300 $200 $100 $ Notes AR Outstanding AR Commitment Revolver Outstanding Revolver Commitment Q (Post Debt Refinancing) notes are prepayable at 25% over par in 2021, and par thereafter Notes AR Outstanding AR Commitment Revolver Outstanding Revolver Commitment

20 Milk Category on Trend with Consumers Fluid Milk Category Presents a Compelling Market Opportunity Positions Dean Foods as an Industry Leader Ubiquitous large category with strong household penetration One of the largest, most profitable categories for retailers Strong health & wellness credentials On-trend with consumers growing focus on fresh, local, protein-dense products with clean labels Aligned to new industry marketing campaign Dean Foods is largest player in milk Coast to coast network, enabling strong partnerships with national retail and food service accounts Large network offers opportunities to optimize capacity, to drive efficiency and to lower unit costs First company to provide a fresh white milk national brand while building on the power and customer loyalty of our regional brands 20

21 Summary and Looking Ahead Expect Q2 adjusted diluted EPS of between $0.20 and $0.30 per share Changing the game with operational excellence, disciplined financial stewardship and innovation as we extend our leadership position in the dairy industry 21 We can drive shareholder value as we leverage our improving operating results and free cash flow performance, our enhanced capital structure and the incremental opportunities associated with DairyPure

22 First Quarter 2015 Earnings May 11,