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Dean Foods' (DF) Q3 Earnings Beat, Sales Miss Estimates

Zacks Equity Research
Updated

Dean Foods Company DF reported solid third-quarter 2015 earnings which beat expectations and improved year over year. Sources revealed that results benefitted from efficient pricing coupled with lower milk costs.

Dean Foods’ quarterly adjusted earnings of 30 cents per share surpassed the Zacks Consensus Estimate of 25 cents and exceeded the company’s own guidance range of 17–27 cents. Moreover, the results compared favorably with a loss of 3 cents recorded in the year-ago quarter.
 

Dean Foods Company (DF) - Earnings Surprise | FindTheCompany

On a GAAP basis, the company’s earnings came in at 22 cents per share from continuing operations, against a loss of 17 cents per share in the year-ago quarter.

Quarter in Detail

Net sales descended 14.3% year over year to $2,033.7 million and missed the Zacks Consensus Estimate of $2,066 million. Though total company volumes met expectations, the same declined 2% to 658 million gallons from 673 million gallons in the prior-year quarter, as Dean Foods maintained high prices in spite of lower raw milk expenses.

However, raw milk costs improved during the reported quarter, resulting in sequential improvement in volumes in the fluid milk category. Further, the Class I Mover registered a year-over-year decrease of 30%, while recording a 4% sequential increase to $16.38 per hundred-weight.

Looking ahead, management expects the average Class I Mover for the fourth quarter to come in at $16.22 per hundred-weight, representing a 1% and 31% decline on a sequential and year-over-year basis, respectively. However, total volume for the fourth quarter is anticipated to dip in low-single digits.

Backed by efficient cost productivity initiatives, impressive volumes and constant focus on price realization, adjusted gross profit jumped 18% to $492 million, while adjusted operating income soared significantly to $62 million in the third quarter. This marked Dean Foods’ third straight quarter of a year-over-year increase in gross profit and operating income.

Financial Position

Dean Foods ended the quarter with cash and cash equivalents of $63.8 million, long-term debt including current maturities of $840.8 million, and shareholders’ equity of $536.1 million. During the first three quarters of 2015, the company generated nearly $322 million of net cash from operating activities and $241.4 million of free cash flow after investing $80.6 million as capital expenditure.

At the end of third-quarter 2015, the company's funded debt to EBITDA ratio was 2.09 times, representing a sequential improvement.

Moreover, during the quarter, Dean Foods repurchased 3.2 million shares worth $53 million, following which it had shares worth $222 million remaining under its current authorization.

Outlook

Management remains impressed with Dean Foods’ progress, given its solid operational and financial results. These factors, along with the debt refinancing which took place recently, have strengthened Dean Foods’ balance sheet even further. Going forward, the company anticipates the general commodity environment to remain favorable. Also, it expects to generate efficient product mix, backed by seasonal demand.  

Taking cue from this strength, focus on cost management, constant brand building initiatives and additional benefits anticipated from its latest DailyPure brand and popular TruMoo brand, the company remains on track to consolidate its position in the dairy industry, and boost shareholder value.

Considering all the aforementioned factors, along with the expected impact of the share buyback, management expects fourth-quarter adjusted earnings to range from 28–38 cents a share.

For full-year 2015, earnings are envisioned in the band of $1.15–$1.25 per share, while adjusted EBITDA is projected to be roughly $400 million. The company expects to incur nearly $150 million in capital expenditure in 2015.

Zacks Rank

Dean Foods currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer staples sector include B&G Foods Inc. BGS, with a Zacks Rank #1 (Strong Buy), Boulder Brands, Inc. BDBD and Diamond Foods, Inc. DMND, each with a Zacks Rank #2 (Buy).

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DIAMOND FOODS (DMND): Free Stock Analysis Report
 
DEAN FOODS CO (DF): Free Stock Analysis Report
 
B&G FOODS CL-A (BGS): Free Stock Analysis Report
 
BOULDER BRANDS (BDBD): Free Stock Analysis Report
 
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