Dean Foods
(DF) reported strong second-quarter results with earnings of $0.43 per share, a penny above the Zacks Consensus Estimate. Quarterly earnings were up 30.3% year-over-year.

Quarterly net sales declined 13.6% year over year to $2.7 billion due to the pass-through of lower overall dairy commodity costs, despite positive contributions from acquisitions and volume growth in Fresh Dairy Direct and modestly lower sales in the WhiteWave-Morningstar business.

Net sales in the Fresh Dairy Direct segment declined 16.0% as the company passed some of the lower dairy costs to customers but was partially offset by continued volume growth. Raw milk prices were 41% lower compared to the prior-year.

Net sales at WhiteWave-Morningstar fell 4.6% to $622 million, attributable to slower category growth and the company’s exit from a food service business in the Silk brand and some private label organic milk business in the U.K. The decline was partially offset by volume gains, especially in the yogurt and cottage cheese categories.

Net sales of Horizon Milk rose in low single-digits due to higher pricing and continued distribution expansion. International Delight and Land O’ Lakes also grew modestly in low single-digits.

Moreover, the company entered into an agreement to acquire the Alpro division of Vandemoortele N.V. during the quarter. The deal was fixed for a transaction price of approximately 325 million euros and was completed early in the third quarter. Alpro is the European leader in branded soy-based beverage and food products with strong brands like Alpro soya and Provamel. Alpro has five manufacturing facilities in Belgium, United Kingdom, France and Netherlands and employs approximately 750 people. Management believes that the acquisition provides great opportunity for the company to expand into new markets across the European Union. Hence, the acquisition establishes Dean Foods as a global leader in the soy-based beverages and food products, with leading brands and over $1 billion in combined retail sales.

Following the earnings release, management raised its guidance for fiscal 2009. Annual earnings are now expected to be at least $1.60 per share, roughly 20% above year-ago levels. Previous guidance was $1.55 per share.

Although commodity costs continue to be favorable, management is concerned about the continued competitive activity in fluid milk operations and is cautious regarding diminished commodity favorability in the future. Earnings for the third quarter are expected to be $0.30 per share.

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