DALLAS — The top executive at Dean Foods Co. could point to two positives, a cost productivity plan and improvements in free cash flow, while the Dallas-based company again reported a quarterly loss.
A loss of $61.6 million in the first quarter ended March 31 compared with a loss of $265,000 in the previous year’s first quarter. The quarterly loss in this year’s first quarter was less than a loss of $260.1 million in the fourth quarter of 2018. Net sales of $1,795.4 million were down 9% from $1,980.5 million in the previous year’s first quarter.
“We saw sequential improvement in each month of the quarter, and our results marked an improvement compared to the fourth quarter of 2018,” said Ralph P. Scozzafava, chief executive officer, in a May 7 earnings call. “Despite unfavorable comparisons arising from certain customer volume that exited our system last year, we believe we have passed the inflection point in our transformation, as many of the initiatives we implemented over the past 12 months are now beginning to take hold.”
Dean Foods on Feb. 27 announced it had initiated a strategic review to explore options such as a merger, joint venture or sale. Mr. Scozzafava talked about the review in the May 7 call.
“It’s very possible that we won’t do anything, and we’ll continue to execute the plan that we have, which we’re very happy with, and we’ll continue to make progress on it,” he said. “So look, we’ve been in conversations with some folks, and we’ll leave it at that.”
Dean Foods is operating in a conventional white milk category where volume continues to decline. Through the end of February, U.S. Department of Agriculture statistics showed the decline for the year was 1.2% in the fluid milk category, said Jody L. Macedonio, chief financial officer and executive vice-president.
Mr. Scozzafava said under the cost productivity plan Dean Foods has made progress integrating its operating model and right sizing its cost structure.
“This has been a significant undertaking and a true reset for Dean Foods, which operates in an industry that’s experiencing large customer and consumer shifts,” Mr. Scozzafava said. “In short, we’re actively resetting our cost structure and our supply chain to more adequately align with the dairy industry of today and tomorrow. We’re moving from a legacy holding company structure into an integrated operating company, with streamlined and centralized operations.”
Costs resulting from plant consolidation are coming down, he said, and a transportation management system is bringing greater visibility across the company’s fleet.
“Specifically, we’re taking a really hard look at our total distribution network from end-to-end as we manage both inbound and internal product movements with our new transportation management system,” Mr. Scozzafava said. “We have greater visibility now, and we can better manage third-party freight rates, contracts, terms through a national network-wide approach as we centralize our third-party freight management.”
Dean Foods defines free cash flow as net cash provided by operating activities less cash payments for capital expenditures. While free cash flow was negative in the first quarter, Dean Foods expects it to be positive in the year’s three remaining quarters.
“It’s important to note that almost all of the negative free cash flow in the quarter was based on January and February results as cash flow in March improved dramatically,” Ms. Macedonio said.