Dean Foods Company‘s (DF) adjusted earnings of 27 cents per share for the fourth quarter of fiscal 2011 was well above the earnings of 15 cents recorded in the year-ago quarter. The quarterly earnings also surpassed the Zacks Consensus Estimate of 23 cents a share. However, on a reported basis, including one-time items, the company registered a loss of 5 cents per share compared with a loss of 11 cents in the prior-year period.
For fiscal 2011, Dean Foods’ adjusted earnings were 77 cents compared with 80 cents registered in fiscal 2010. However, on a reported basis, including one-time items, the company registered a loss of $8.59 per share compared with earnings of 50 cents in the previous fiscal.
The company exited fiscal 2011 with solid top and bottom line performances, primarily driven by a recovery in its fluid milk business after exerting considerable pressure on margins for two years along with continuous growth at WhiteWave-Alpro business.
Quarterly Discussion
Dean Foods’ quarterly net sales grew 4.5% year over year to $3,296 million compared with net sales of $3,153 million in prior-year quarter. The growth was primarily a pass-through of increased commodity costs at Fresh Dairy Direct-Morningstar to consumers in the form of higher prices.
Moreover, strong top-line performance at WhiteWave-Alpro also boosted its revenue growth. Quarterly net sales missed the Zacks Consensus Estimate of $3,338 million.
From the fourth quarter of 2011 onwards, management has decided to report is financials in three different segments, i.e. Fresh Dairy Direct, WhiteWave-Alpro and Morningstar.
Segment-wise, during the fourth quarter, Dean Foods’ Fresh Dairy Direct-Morningstar sales increased 4% to $2.4 billion while WhiteWave-Alpro’s sales climbed 6% to $559 million. The company’s Morningstar segment registered a year-over-year top line growth of 7%.
Adjusted operating income for the fourth quarter increased 20.5% to $135 million from the prior-year quarter’s $112 million. The increase resulted primarily from an operating income growth of 17% and 11% at WhiteWave-Alpro and Fresh Dairy Direct, respectively. This was partially countered by a 6% drop in operating profit at Morningstar.
Consequently, Dean Foods’ adjusted operating margin for the quarter expanded 50 basis points to 4.1% compared with 3.6% in the prior-year quarter.
Dean Foods ended the fiscal with cash and cash equivalents of $114.9 million, long-term debt of $3,768 million, shareholders’ equity (deficit) of ($98.7) million, excluding the non-controlling interest of $4.7 million. During the twelve-month period, the company generated $449.3 million of cash from operation and free cash flow of $123 million while it utilized $303.4 million toward net debt repayment.
Outlook
For the first quarter of fiscal 2012, Dean Foods expects earnings to be in the range of 18 cents to 23 cents a share that dovetails with the Zacks Consensus estimate of 23 cents a share. Moreover, the company forecasts full-year 2011 adjusted earnings in the range of 87 cents to 95 cents a share, a growth of 13% – 24% from fiscal 2011. The current Zacks Consensus Estimate for full fiscal 2012 stands at 90 cents per share.
Dean Foods, which competes with Kraft Foods Inc. (KFT), currently has a Zacks #3 Rank, implying a short-term Hold rating on the stock. This corresponds with our long-term Neutral recommendation on the stock.
