Dean Foods First Quarter 2014 Earnings Report. May 8, 2014

Transcription

1 Dean Foods First Quarter 2014 Earnings Report May 8,

2 The following 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: statements relating to (1) projected sales (including specific product lines and the company as a whole), profit margins, net income, earnings per share, free cash flow and debt covenant compliance, (2) our regional and national branding initiatives, (3) our innovation, and research and development plans, (4) commodity prices and other input costs, (5) our cost-savings initiatives, including plant closures and route reductions, and our ability to accelerate any such initiatives, (6) our plans related to our leverage, (7) our planned capital expenditures, (8) the status of our litigation matters, (9) the impact of divestitures including the sale of Morningstar and tax payments related thereto and the divestiture and spin-off of our former subsidiary, The WhiteWave Foods Company, (10) our dividend policy, and (11) 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, 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 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, including the Morningstar divestiture and the spin-off of our former subsidiary, The WhiteWave Foods Company. 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 Tim Smith, SVP Investor Relations and Treasurer Gregg Tanner, Chief Executive Officer Chris Bellairs, Chief Financial Officer 3

4 Challenging quarter Adjusted Operating Income down $67 million vs. prior year Adjusted Net Income and Diluted EPS down $34 million and $0.36, respectively Negative impact associated with winter weather disruption approximately $4 million or 3 cents Continued pressures from all time high Class 1 raw milk price Paid first cash dividend in Q1 and repurchased $25MM in DF Stock (in millions, except per share data and leverage ratio) Q1 14 Q1 13 Q1 YoY Adj. Operating Income* $7 $74 ($67) Adj. Net Income* ($5) $30 ($34) Adj. Diluted EPS* ($0.05) $0.31 ($0.36) Adj. FCF* $11 ($24) $35 Net Debt to EBITDA 2.75x * See Reconciliation of Non-GAAP Financial Measures in the press release earnings tables for computation 4

5 (millions of gallons) YoY Volume Growth Q2 2013: -6% Q3 2013: -8% Q4 2013: -8% % Q Q Q Q Q Q Q Q Q Note: Excludes WhiteWave and Morningstar for all periods 5

6 Dean Foods Share Q1 volumes continue to reflect full impact of RFP 6.7% fluid milk volume decline year over year Recent wins continue to positively impact volumes in Q1 Small format volume plus 7.6% versus prior year 11 consecutive quarters of growth in the dollar channel Dean s share of Branded White Milk at retail increased 130 basis points versus prior 42.0% 40.0% 38.0% 36.0% 34.0% 32.0% 30.0% 28.0% 26.0% 24.0% 22.0% Dean Fluid Milk Share USDA Fluid Milk Volume YoY [1] 38.1% 38.3% 38.3% 38.3% 37.8% 36.4% 34.9% +1.0% 35.8% 35.9% -1.4% -1.5% -1.9% -1.9% -1.9% -2.1% -2.5% -2.1% -3.3% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q year [2] DF fluid milk volume up 1.1% excluding RFP and customer vertical integration impact 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% significantly better than 2.1% category decline 1 1Q14 USDA includes March month estimates based on Federal Milk Marketing Order receipts and Class I utilization. 2 Source: IRI 6

7 Brand Coverage National Formula National Advertising National Promotions National Availability Category Expansion 7 7

8 $1.80 $1.75 Private Label Retail Price Less Class I Raw Milk Cost Conventional White Milk Gallons $1.70 $1.65 As of Mar. 30, 2014: $1.43 $1.60 $1.55 $1.50 $1.45 $1.40 $1.35 $ Source: IRI, USDA. Class I mover converted at 11.6 gallons per cwt Chart is a 90 day rolling average 8

9 Class I Mover (per cwt) June 2012 June 2014 (monthly) Forecast $15.51 $17.59 $16.55 $15.24 $18.88 $20.70 $21.39 $18.97 $18.21 $17.80 $17.66 $18.93 $18.91 $18.88 $17.76 $19.16 $19.20 $21.48 $22.02 $23.64 $23.65 $24.47 ~$23.10 $20.20 $20.37 June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Quarterly Average $22.38 Forecast ~$ % YoY $16.44 $19.83 $21.41 $18.83 $17.38 $16.55 $20.32 $18.33 $18.12 $18.98 $19.92 $ Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 9

10 Bangor, ME Evart, MI Mendon, MA Riverside, CA Denver, CO (announced 02/14) Springfield, VA Delta, CO (announced 04/14) Dallas West, TX (announced 04/14) Buena Park, CA Waco, TX Shreveport, LA Solid progress against accelerated cost reduction with 8 plants closed in 2013, and 3 closures announced through April

11 $1 million reduction in Q1 distribution costs as reduction lagged behind volume decline Distribution costs negatively impacted due to plant closures as miles driven increase $12 million reduction in Q1 SG&A (9%) 11

12 Per gallon 74 Adjusted Operating Income ($ Millions, except per gallon) Q1 Q2 Q3 Q4 Q % PY -91% Overview Q1 adjusted gross profit of $416 million Adjusted operating income of $7 million RFP-driven volume decline and transitory costs partially offset by progress across efficiency and cost initiatives Challenging overlap will remain through Q2 12

13 ($ millions, except EPS) Q $ B/(W) vs Q1 13 Adjusted Gross Profit $416 ($80) Logistics SG&A Total Adjusted Operating Costs* Consolidated Adjusted Operating Income* 7 (67) Adjusted EBITDA* 46 (70) Interest Expense Taxes (3) (38.0%) 21 Adjusted Diluted EPS ($0.05) ($0.36) * 2013 results are presented on a pro forma basis. See Reconciliation of Non-GAAP Financial Measures in the press release earnings tables for computation 13

14 Overview Q1 total net debt of $906 million Includes Q1 impact of $25 million in share repurchases and $15 million Morningstar tax payment 3,976 3,651 Dean Foods Net Debt ($ Millions) 2,298 Q1 net debt to EBITDA ratio of 2.75x* FY FY FY FY Q Total Net Debt/EBITDA Ratio 5.12x 4.62x 3.52x 2.21x 2.75x * Net debt is total long term debt less all cash on hand. Calculated per Dean Foods credit agreements would be 2.75x 14

15 ($ millions) Three months ended March 31, 2014 Three months ended March 31, 2014 Adjusted* Three months ended March 31, 2013 Adjusted * Net Cash Provided by (Used in) Continuing Operations $33 $39 ($9) Net Capital Expenditures ($28) ($28) ($16) Free Cash Flow Provided by (Used in) Continuing Operations $5 $11 ($24) *Adjusted to reflect certain one time items. See Reconciliation of Non-GAAP Financial Measures in the press release earnings tables for computation 15

16 Dairy Stocks Volume (MM lbs): Mar 2014 vs. PY 1,200 1,000-95MM Mar-13 Mar MM -4MM Cheese Butter Non Fat Dry Milk Total YTD U.S. dairy export volume increased 22.8% compared year prior levels through March with increases in NFDM, cheese and butter exports leading the way U.S. stocks across cheese, butter and non-fat dry milk are well below year ago levels Versus March year ago levels, stocks are down 8.6%, 30.1% and 1.7% across cheese, butter and non-fat dry milk, respectively Sequentially, stocks are flat, +9.3% and +17.9% across cheese, butter and non-fat dry milk Source: United States Department of Agriculture - Foreign Agricultural Service and National Agricultural Statistics Service 16

17 Q2 14 Adjusted Diluted EPS Dean Foods Approximately ($0.02) to ($0.08) FY 14 Adjusted Diluted EPS At least $0.60 (assumes fully diluted share count of approximately 95 million ) FY 14 Free Cash Flow At least $125 million FY 14 Cap Ex Approximately $150 $175 million Note: See Reconciliation of Non-GAAP Financial Measures in the press release earnings tables for computation 17

18 Quarter challenged by historically high raw milk costs and transitory costs in production and distribution Expect continued challenges in Q2 as we work through the margin pressures associated with record high raw milk costs and soft industry volumes Remain confident we are building a foundation for success Thank you for your continued interest and support 18

19 Dean Foods First Quarter 2014 Earnings Report May 8,