Dean Foods Third Quarter 2008 Earnings Report. November 4, 2008

Transcription

1 Dean Foods Third Quarter 2008 Earnings Report November 4, 2008

2 Forward Looking Statements The following statements made in this presentation are forward looking and are made pursuant to the safe harbor provision of the Securities Litigation Reform Act of 1995: statements relating to (1) projected sales (including for individual segments, for specific product lines and for the company as a whole), profit margins, net income and earnings per share, (2) our growth strategy, (3) our branding initiatives (4) our integration plans, and (5) our cost-savings initiatives. 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. Sales, profit margins, net income and earnings per share can vary based on a variety of economic, governmental and competitive factors, all of which are identified in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10K (which can be accessed on our website at or the website of the Securities and Exchange Commission at The success of our branding initiatives will depend on a number of factors, including customer and consumer acceptance of both the products themselves and the prices that we intend to charge for those products. We have many competitors with greater resources than ours, and significant additional spending or innovations by our competitors could render our products less successful than we currently expect. 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 and free cash flow for the quarters ended March 31, 2007, June 30, 2007, September 30, 2007, December 31, 2007, March 31, 2008 June 30, 2008, and September 20, 2008 and consolidated adjusted operating income and consolidated adjusted net income for the quarter ended September 30, 2008, have been adjusted to eliminate the net expense or net gain related to certain items identified in our press releases dated May 3, 2007, August 7, 2007, November 8, 2007, February 13, 2008, April 30, 2008, August 6, 2008 and November 4, A full reconciliation of these measures calculated according to GAAP and on an adjusted basis is contained in such press releases, which are publicly available on our web site at 2

3 Today s Prepared Remarks Barry Sievert, VP Investor Relations & Corporate FP&A Jack Callahan, Chief Financial Officer Review Financial Results Gregg Engles, Chief Executive Officer Update of Strategic Initiatives Comments on Forward Outlook 3

4 Q3 Financial Highlights Consolidated Adjusted Operating Income Growth +14.3% Diluted Adjusted Earnings Per Share Growth + 100% 12.2% 14.3% 3.1% -9.6% -13.5% -19.3% $0.50* -29.3% Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Free Cash Flow** +$288 million YTD $ $ Millions (18.8) (11.9) Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 * Q1 07 Diluted EPS is prior to balance sheet recapitalization ** Free Cash Flow is defined as net cash provided by operating activities less capital expenditures

5 Q3 Segment Performance $ Millions Q % Change vs Q3 07 DSD Dairy Fluid Milk Volume NA 3.2% Net Sales $2, % Operating Profit $ % WhiteWave-Morningstar Net Sales $ % Operating Profit $ 41.3 (4.0%) 5

6 Fluid Milk Volumes: DSD Dairy vs. USDA 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Fluid Milk DSD Dairy vs USDA DSD Dairy 3.2% 1.3% estimate USDA -1.0% -2.0% -3.0% -4.0% Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 6

7 Significant, but easing inflation in the third quarter $22 $20 Class I Milk 2007 $5.00 $4.50 $4.00 Diesel Fuel 2008 $ $3.50 $16 $ $14 $12 $15 $13 $11 $9 $7 2Q 3Q J F M A M J J A S O N D $2.00 J F M A M J J A S O N D Natural Gas $2.50 2Q 3Q Resin $ $ $ $ $5 $3 2Q 3Q J F M A M J J A S O N D $0.60 $0.50 2Q 3Q J F M A M J J A S O N D Diesel Fuel and Natural Gas Futures Data: US Energy Information Administration Class I Milk Data: USDA HDPE Resin Prices: Chem Data 7

8 Quarterly Performance: DSD Dairy Operating Profit $ Millions $ Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 % PY -25.6% -16.1% -14.8% 9.3% 20.5% Income growth increased 21% from Q Commodity inputs improved steadily throughout quarter Tough competitive environment 8

9 Quarterly Sales Performance: WhiteWave Morningstar $ Net Sales $ Millions Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 % PY 20.8% 21.1% 16.8% 10.4% 8.6% WW-MS Net sales up 9% over Q307 WhiteWave net sales $378.7 MM, up 13% Morningstar net sales $292.6 MM, up 4% 9

10 Quarterly Sales Performance: WhiteWave Branded Portfolio Q Net Sales Growth High Single Digits High Single Digits Low Double Digits Nearly Twenty Percent* Strong growth across the portfolio *Refers to branded milk sales 10

11 Horizon Organic $3.86 Retail Pricing Horizon Regular White Half Gallon $3.71 $3.56 $3.63 $3.74 $3.89 $3.98 Q3 Highlights Increasing prices to offset rising raw milk costs and tightening supply Private label prices increasing but at a slower rate Retail price gaps versus private label are a concern Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 % PY 4.9% -1.6% -6.4% -5.3% -3.1% 4.9% 11.8% 11

12 Morningstar Key Commodity: CME AA Butter Per pound 3Q $ Actual $1.60 $1.50 $ Actual $1.30 $1.20 $1.10 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 12

13 Quarterly Operating Profit Performance: WhiteWave Morningstar Operating Profit $ Millions Q3 Highlights $ Strong profitability across WhiteWave portfolio, excluding Horizon Organic Continuing challenges in the Horizon Organic brand Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Morningstar unable to quickly pass through increased butter and other commodity inflation % PY -18.1% -10.5% 0.5% -11.7% -4.0% 13

14 Corporate Expense $ Millions Q3 Highlights $ In line with previous quarter, year ago quarter below yearly average Continue to invest in building capabilities in supply chain, R&D, and other strategic initiatives Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 % PY 4.5% 12.4% -2.4% 4.1% 12.4% 14

15 Consolidated Adjusted Operating Income, Net Income & Diluted EPS $ Millions, except EPS Q B/(W) vs Q3 07 Operating Income $ % Interest Expense $ 74.7 $14.9 Tax Rate 34.4% Net Income from continuing operations $ % Shares Outstanding M Shares EPS $ % 15

16 Cash Flow $ Millions Nine months ended Sept 30, 2008 Net Cash Provided by Continuing Operations $ Capital Expenditures (171.0) Free Cash Flow from Operations $ Cash Outflows for Acquisitions $ (75.2) Repayment of Debt* $ (653.1) Issuance of Common Stock $ * Repayment of Debt per Cash Flow Statement excludes $16.4M of non-cash items, which are borrowings/increases to the debt balance. 16

17 Total Debt Outstanding Senior Notes 18% $ Millions Senior Credit Facility 71% Receivablesbacked Facility 11% $5,357 5,366 5,272 as of 9/30/08 4,812 4,724 4,635 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Leverage Ratio* 5.64x 5.97x 5.94x 5.56x 5.48x 5.35x *As defined by credit agreement(s) 17

18 CFO Summary Strong overall third quarter performance DSD Dairy: strong volume and operating income growth WhiteWave-Morningstar: solid sales growth, but commodity challenges expect return to profit growth in Q4 Expect solid fourth quarter Favorable commodity trends heading into fourth quarter Tough economy/competitive environment Reiterate 2008 adjusted diluted EPS guidance for at least $

19 Gregg Engles, CEO DSD Dairy Excess cream sales back to historical levels of contribution Milk costs easing Energy and resin prices declining Increasing competitive intensity driven by two difficult years for the industry WhiteWave-Morningstar Strong third quarter sales growth Commodity inflation challenged WhiteWave (organic milk) and Morningstar (butter) Expect stronger results going forward 19

20 Fluid Milk Volumes: DSD Dairy vs. Competitors 5.0% 4.0% 3.0% 2.0% DSD Dairy vs Competitors* DSD Dairy 3.2% 1.0% 0.0% -1.0% 0.2% estimate Competition -2.0% -3.0% -4.0% Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 *Competitor estimates derived from subtracting DSD Dairy pounds from USDA sales pounds Q3 contains an estimate for USDA/Competitor September sales 20

21 Transformation Planning Leverage leading position to achieve cost leadership in the fluid milk industry Strategies: Aggressively pursue economies of scale Invest in technology, R&D and supply chain expertise Initiatives: Product standardization & sourcing Network optimization Continuous improvement Distribution efficiency 21

22 Joint Venture Dean Foods and Hero Group form joint venture called Hero- WhiteWave to introduce innovative chilled fruit products to North America that have helped make Hero a leader in Europe Hero Group produces international lines of innovative fruit and infant nutrition products under the Hero and Beech-Nut brands 50/50 joint venture based in Broomfield, CO Combines innovation, technology, manufacturing and distribution expertise of two companies 22

23 Fruit2Day Fruit2Day is an exciting new healthy food product that offers consumers a surprising and healthy way to enjoy the goodness of fruit First product of its kind in U.S. stores - innovative chilled fruit-based product line with real bits of fruit that you both sip and chew Successfully launched in European Markets Initial launch investment will be dilutive to Dean Foods 2009 adjusted diluted earnings by approximately six cents 23

24 2009 Summary and Guidance DSD Dairy WhiteWave- Morningstar Significant momentum behind cost savings initiatives heading into 2009 Heightened level of competitive pressure Continued net sales growth Expect WhiteWave-Morningstar return to profit growth Hero JV brings new platform for growth, requires approximately six cents per share investment in 2009 Dean Foods Investment required in supply chain, distribution technology and R&D capability to support longer-term strategy Increased pension expense of approximately three cents per share EPS Comfortable with estimates for mid-teens EPS growth in 2009 Opportunity for significant value creation over next 3-5 years 24

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