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Dean Foods Up on Q1 Earnings Beat as Raw Milk Costs Fall - Analyst Blog

After a dismal end to 2014, Dean Foods Company DF began 2015 on a solid note with better-than-expected first-quarter 2015 earnings. Results were driven by improvement in the commodity market, lower raw milk costs and volumes, coming closer to expectations. Shares of the company have jumped 6.5% following the earnings announcement.

Dean Foods’ quarterly adjusted earnings of 24 cents per share from continuing operations surpassed the Zacks Consensus Estimate of 17 cents as well as its own guidance of a range of 12–22 cents. Moreover, the results compared favorably with a loss of 5 cents recorded in the year-ago quarter.
 

Dean Foods Company - Earnings Surprise | FindTheCompany

However, on a GAAP basis, the company posted a loss of 78 cents per share from continuing operations, significantly wider than the year-ago loss of 9 cents per share.

Quarter in Detail

Though bottom-line results were impressive, net sales of this Zacks Rank #5 (Strong Sell) company descended 12.4% year over year to $2,050.8 million, also missing the Zacks Consensus Estimate of $2,152 million. Total company volumes declined 3% to 662 million gallons from 685 million gallons in the prior-year quarter, but were within the company’s projected range.

However, raw milk costs improved during the quarter, resulting in sequential improvement in volumes in the fluid milk category. The Class I Mover registered a respective year-over-year and sequential decrease of 25% and 29% to $16.79 per hundred-weight.

Backed by better pricing, adjusted operating income surged over seven times to $52 million compared with $7 million in the prior-year quarter. Further, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) almost doubled to $90 million, compared with $45.6 million recorded in the same period a year ago.

Financial Position

Dean Foods ended the first quarter of 2015 with cash and cash equivalents of $30.1 million, long-term debt including current maturities of $853.4 million and shareholders’ equity of $550.6 million. During the quarter, the company generated $157.6 million of net cash from continuing operations. Also, it generated $138.2 million of free cash flow.

Additionally, Dean Foods completed its debt refinancing. In Feb 2015, the company issued senior notes worth $700 million, due 2023. The proceeds were utilized to redeem existing borrowings. In March, the company entered into a new senior revolving credit facility worth $450 million, extending over five years.

At the end of first-quarter 2015, the company's funded debt to EBITDA ratio was 3.35 times.

Recent Developments

Earlier this week, the company took a step ahead on its path of innovation, by introducing the nation’s first and biggest fresh white milk national brand – DairyPure. This brand is likely to aid the company’s growth by providing additional benefits to consumers.

Outlook

Dean Foods remains impressed with its sequential progress, given its solid operational and financial results. Taking cue from this strength, improved capital structure and additional benefits anticipated from its latest DailyPure brand, the company expects to consolidate its position in the dairy industry, and boost shareholder value.

Assuming a low single-digit decline in volumes along with other usual seasonal factors, management expects second-quarter earnings to range from 20–30 cents a share.

Stocks to Consider

Better-ranked stocks in the consumer staples sector include SUPERVALU Inc. SVU, Post Holdings, Inc. POST, each sporting a Zacks Rank #1 (Strong Buy), and Tyson Foods, Inc. TSN, with a Zacks Rank #2 (Buy).


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SUPERVALU INC (SVU): Free Stock Analysis Report
 
DEAN FOODS CO (DF): Free Stock Analysis Report
 
TYSON FOODS A (TSN): Free Stock Analysis Report
 
POST HOLDINGS (POST): Free Stock Analysis Report
 
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