Dean Foods Company‘s (DF) adjusted earnings per share for the fourth quarter fiscal 2010 came in at 15 cents, well behind 31 cents recorded in the year-ago quarter but beat the Zacks Consensus Estimate by a penny.

Dean Foods’ full-year 2010 earnings of 80 cents per share fell 49.7% from the prior-fiscal earnings of $1.59 but surpassed the Zacks Consensus Estimate by a penny.

Financial Discussion

Dean Foods faces an exceptionally tough fiscal 2010, as the wholesale pricing of its private label milk at Fresh Dairy Direct-Morningstar remained under pressure. The company also faces volume weakness in the whole year.

Dean Foods’ quarterly net sales grew 5.5% year over year to $3,153.0 million, missing the Zacks Consensus Estimate of $3,176.0 million. The growth was primarily a pass-through of higher commodity costs at Fresh Dairy Direct-Morningstar to consumers in the form of higher prices and record top and bottom line performance at WhiteWave-Alpro that were partially offset by volume softness at Fresh Dairy Direct-Morningstar.

Segment-wise, during the fourth quarter, Dean Foods’ Fresh Dairy Direct-Morningstar sales increased 5.2% to $2,625.9 million while its WhiteWave-Alpro’s sales increased 7% to $527.0 million.

For the full fiscal 2010, the company’s sales grew 9.1% year over year to $12,122.9 million fell short the Zacks Consensus Estimate of $12,164.0 million.

Adjusted operating income for the fourth quarter declined 25.9% to $111.7 million compared to the prior year quarter of $150.7 million. The decline in the operating income was primarily driven by a $49.0 million decline in operating profit at Fresh Dairy Direct-Morningstar. Operating margin contracted to 3.5% from the prior-year quarter of 5.0%.

For fiscal 2010, adjusted operating income declined 32% to $471.7 million from prior-year operating income of $693.5 million primarily due to a decline $252.0 million in operating income at Fresh Dairy Direct-Morningstar. Operating margin for the year contracted to 3.9% compared to 6.2% in fiscal 2009.

Dean Foods’ adjusted operating expenses for fiscal 2010 rose 5.1% to $2,534.3 million from $2,411.7 million in fiscal 2009. While for the fourth quarter it declined 1% to $645.3 million compared to $651.8 million in the prior-year quarter.

Dean Foods ended fiscal 2010 with cash and cash equivalents of $92.0 million with a long-term debt of $4,067.5 million, and shareholders’ equity of $1,499.5 million excluding non-controlling interest of $14.5 million. During the year, the company generated $525.7 million of cash from operations and a free cash flow of $223.7 million while it utilized $302.0 million toward capital expenditure and $208.0 million in net debt repayment.

Outlook

The company has changed its outlook for first half of fiscal 2011. The company now expects dairy commodity prices will rise due to global demand and poor weather in Australia and New Zealand.

Moreover, the company is in midst of massive cost reduction effort, which it expect to deliver $125.0 million in productivity in fiscal 2011. Dean Foods is expecting its full year 2011 adjusted earnings to be in range of 55 cents to 65 cents.

Zacks Rank

Dean Foods, which competes with Kraft Foods Inc. (KFT), currently has a Zacks #4 Rank, implying a short-term Sell rating on the stock. Besides, the company retains a long-term Neutral recommendation on the stock.

 
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