Dean Foods Q3 Profit Soars, But Outlook Disappoints; Adopts Dividend Policy

(RTTNews) - Dean Foods Co. (DF) on Tuesday reported a profit for the third quarter that soared from last year, reflecting a gain on disposition of WhiteWave common stock. This more than offset lower sales and a decline in milk volume.

Looking ahead, the company forecast adjusted earnings for the fourth quarter below analysts' expectations and revised its outlook for fiscal 2013 adjusted earnings. Shares of the company are down 8 percent in the regular trading session.

Dean Foods' board of directors adopted a dividend policy, with the intention of paying a $0.07 quarterly dividend beginning in the first quarter of 2014. The board also increased the company's share repurchase authority to $300 million. In addition, Dean Foods said it has initiated a cash tender offer for up to $400 million of its outstanding bonds.

Dallas, Texas-based Dean Foods' net income for the third quarter was $415.12 million or $4.35 per share, up from $36.44 million or $0.39 per share in the same quarter last year. The latest quarter's results include a gain on disposition of WhiteWave common stock of $415.78 million. The company completed the spin-off of WhiteWave Foods Co. in May 2013.

Adjusted net income attributable to the company for the latest quarter was $11.09 million or $0.12 per share, compared to pro forma adjusted income of $12.74 million or $0.14 per share in the prior-year period. On average, fourteen analysts polled by Thomson Reuters expected the company to report earnings of $0.13 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the third quarter declined 2 percent to $2.20 billion from $2.24 billion in the prior-year quarter. Analysts had a consensus revenue estimate of $2.19 billion for the quarter.

Total operating costs and expenses for the quarter increased 4 percent from the prior-year period to $418.62 million. The latest quarter's results include higher facility closing and reorganization costs of $7.27 million, and impairment charges of $4.42 million.

Dean Foods' share of U.S. fluid milk sales volume in the third quarter declined to 34.9 percent from 36.4 percent in the preceding second quarter. Industry fluid milk volumes declined about 1.7 percent year-over-year in the third quarter on an unadjusted basis, based on USDA data and company estimates.

Due to the previously disclosed loss of business at a large retailer, Dean Foods' unadjusted fluid milk volumes declined 10 percent on a year-over-year basis.

Excluding this loss of business at a major customer and another customer's decision to vertically integrate its dairy operations last year, Dean Foods' milk volumes declined 1.7 percent in the quarter. Total volumes across all products declined 8 percent to 685 million gallons.

Looking ahead to the fourth quarter, Dean Foods forecast adjusted earnings in a range of $0.17 to $0.23 per share. Analysts expect the company to report earnings of $0.28 per share for the quarter.

For fiscal 2013, Dean Foods now forecasts adjusted earnings between $0.85 and $0.91 per share. Earlier, the company forecast adjusted earnings in a range of $0.47 to $0.53 per share on a pre-split basis, that roughly translated to adjusted earnings of $0.94 to $1.06 on a post-split basis. Street expects the company to report full-year earnings of $0.98 per share.

Dean Foods also 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, or 10 to 15 percent, of its manufacturing facilities by mid-2014. As at the end of the third quarter, seven of the announced closures have ceased operations.

The company's board of directors has adopted a dividend policy with the intention of paying a $0.07 quarterly dividend beginning in the first quarter of 2014, or $0.28 per share on an annual basis. In addition, the board increased the company's available share repurchase authority to $300 million.

Separately, Dean Foods said it has initiated cash tender offers for up to $400 million aggregate principal amount of its 9.75 percent senior notes that mature in 2018 and 7 percent senior notes that mature in 2016, with preference given to the 2018 bonds. The tender offers will expire on December 10, 2013. unless extended.

The tender offer will be funded with the company's existing cash on hand, as well as borrowings under its senior secured credit facility. The company expects the transaction to close before the end of the year and to result in reduced interest expense going forward.

Dean Foods has engaged BofA Merrill Lynch as sole dealer manager and solicitation agent for the offers.

In Tuesday's regular trading session, DF is trading at $18.04, down $1.67 or 8.47 percent on a volume of 71,676 shares.