Dean Foods Co.
October 1, 2012
Amid strong company-wide results in 2011 and the first half of 2012, Dean Foods Co. in August confirmed plans for the partial spin-off of its WhiteWave-Alpro segment to become WhiteWave Foods Co. The move had been anticipated and generally was viewed favoribly by stock analysts.
Dallas-based Dean Foods will issue shares for up to 20% of WhiteWave and retain the remainder for at least 180 days after the i.p.o. The spin-off was expected to generate between $300 million and $400 million, which will be combined with new debt of $800 million to $925 million incurred by WhiteWave Foods Co. that will, in turn, reduce the outstanding debt of consolidated Dean Foods. WhiteWave includes Silk/Alpro plant-based beverages (No. 1 globally in soy beverages and soy foods), Horizon organic milk (No. 1 organic dairy brand in the United States) and International Delight creamers (No. 2 in U.S.).
Gregg Engles, chairman and chief executive officer of Dean Foods Co., will become c.e.o. of the new WhiteWave Foods Co. and remain chairman of Dean Foods. Gregg Tanner, currently president and chief supply chain officer for the Fresh Dairy Direct segment, will become c.e.o. of Dean Foods.
WhiteWave ranks a distant second among Dean Foods three operating segments but had the highest percentage of income growth in 2011 with operating income of $206 million. That figure was up 18% from 2010, below the $349 million for Fresh Dairy Direct, which was down 15%, but above $95 million for Morningstar, which was up 4%. Fresh Dairy Direct is the largest processor and distributor of milk and other dairy products in the United States with an estimated 38% share of the fluid milk market. Morningstar is a leading producer of cultured and extended shelf life dairy products.
In September Dean Foods said it had decided to explore a transaction that may result in the sale of the Morningstar business.
“The company has not yet identified a buyer for Morningstar, but believes the business possesses an attractive portfolio in a growing marketplace and a top-notch team,” Dean Foods said.
Fresh Dairy Direct-Morningstar became separate reporting segments in the fourth quarter of 2011.
Fresh Dairy Direct contributed about 74% of the company’s total net sales in 2011. Seventy-four per cent of the segment’s net sales came from fluid milk, 67% of its sales were to retailers and 53% of sales were private label.
WhiteWave-Alpro contributed 16% of net sales in 2011, of which 86% was to retailers. Of the segment’s brands, Horizon Organic was 24%, Silk 22%, International Delight 22%, Alpro 18%, Land O’ Lakes 10% and other/private label 4%.
Morningstar contributed 10% to total sales, including 36% to retailers and 64% to food service.
After a shaky start to 2011 mainly related to pressure on the fluid milk business and challenging economic conditions, Dean Foods ended the year gaining significant new volume, launching several products, reducing costs, reducing its leverage ratio of funded debt to EBITDA ahead of schedule and meeting or exceeding its external financial guidance.
Following strong second-quarter 2012 results driven by solid growth across all operating segments and continued focus on expense control, Mr. Engles said,
“We are pleased with the progress we continue to make on all fronts,” he said. “Given our strong performance in the first half, and expectations for continued momentum over the balance of the year, we are increasing our full-year guidance for adjusted diluted earnings per share to a range of $1.18 to $1.28 per share.”