Dean Foods quarterly earnings, guidance up

by Josh Sosland
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DALLAS — Net income of Dean Foods Co. in the third quarter ended Sept. 30 totaled $36,441,000, equal to 20c per share on the common stock. In the same quarter in 2011, Dean Foods sustained a loss of $1,540,497,000.

Sales in the third quarter were $3,143,252,000, down 8% from $3,410,797,000 in the third quarter last year.

Results in the third quarter of last year included a goodwill impairment charge of $1,926 million. Adjusted operating income in the third quarter of 2012 was $145 million, up 35% from $108 million in the third quarter last year.

In addition to announcing financial results, Dean Foods raised it 2012 full-year earnings guidance to $1.27 to $1.32 per share, an increase of 4c to 9c per share from its most recent guidance.

Gregg Engles, who is chairman of Dean Foods, noted the company has put together five consecutive quarters of growth “with all operating segments continuing to perform well.”

“Our strong performance this year has created the flexibility to pursue important strategic actions like the recently completed initial public offering of The WhiteWave Foods Co.,” he said. “It has also driven our expectations for further growth to close out the year.”

Operating income of WhiteWave-Alpro in the third quarter was $64 million, up 25% from $52 million in the third quarter of 2011. Sales were $598 million, up 13%.

Within the WhiteWave group, sales growth was strongest in its creamers and beverages segment, up more than 20%. Growing at a mid-single-digit rate was the company’s Premium Dairy business, which includes Horizon organic mill and related products.

Operating income of the Fresh Dairy Direct business of Dean Foods was $94 million, up 25% from $75 million in the third quarter last year. Sales were $2.2 billion, down 13%. The decline reflected a “pass-through of lower overall year-over-year commodity costs.” Third quarter sales volume for the division fell 1.4%, which Dean Foods said compares favorably to an overall industry decline of 3.1%.

Operating income for the Morningstar division in the third quarter was $31 million, up 54% from $20 million in the third quarter of 2011. Sales were $338 million, down 3%.

Morningstar markets cultured dairy products, ice cream mixes, coffee creamers, aerosol whipped toppings, traditional and value-added milks, and blended iced beverages to retailers and food service providers nationwide. In September, Dean said it was exploring the sale of Morningstar.

Mr. Engles said the higher guidance for 2012 reflected strength across the business before any adjustments related to the WhiteWave-Alpro i.p.o.

“At WhiteWave-Alpro, we said we expected strong momentum to continue in the back half of the year,” he said. “Third-quarter results were strong, and we expect continued momentum in the fourth quarter, with full-year segment operating income growth of around 20%.

“At Fresh Dairy Direct, last quarter we said we expected mid-to-high teens full-year operating income growth. We expect the upside from the third quarter to more than offset the impact of higher-than-expected commodity costs and the effects of Hurricane Sandy in the fourth quarter. So, while we continue to expect fourth-quarter Fresh Dairy Direct operating income to be down on a year-over-year basis, we have increased our full-year expectations for operating income to increase in the high-teens to twenty per cent. The third quarter’s outperformance has provided a bit of breathing room against this target as we navigate a more challenging commodity environment in the fourth quarter, giving us confidence in our ability to hit our full-year segment operating income target.

“At Morningstar, strong growth across the business has continued, and we are increasing our expectations for full-year operating income growth. We now expect Morningstar full-year operating income to be above year ago levels in the mid-twenty per cents, reflecting expectations for continued momentum to finish out the year.”

In connection with the initial public offering of The WhiteWave Foods Co., completed on Oct. 31, Mr. Engles has resigned as chief executive officer of Dean Foods but remains chairman of the company. He will serve as president and c.e.o. of WhiteWave. Succeeding Mr. Engles as Dean Foods c.e.o. is Gregg Tanner, who most recently was president of Fresh Dairy Direct and chief supply chain officer.

With the i.p.o., Dean Foods continues to hold an 86.7% stake in WhiteWave.

In the nine months ended Sept. 30, Dean Foods net income was $130,489,000, equal to 72c per share, versus a loss of $1,565,757,000 in the first nine months of 2011. Sales were $9,482,650,000, down from $9,759,459,000.
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