Dean Foods Company (DF) reported adjusted earnings of 29 cents per share for the first quarter of 2013, beating its own guidance range of 22 cents — 27 cents as well as the Zacks Consensus Estimate of 26 cents.
Dean Foods has managed to beat its own guidance range for the 9th consecutive quarter owing to its sustained focus on cost control and better pricing. However, the company’s quarterly earnings fell 6.5% compared with the year-ago earnings of 31 cents per share.
This Zacks Rank #3 (Hold) company’s adjusted earnings include the majority ownership interest in its consolidated subsidiary, The WhiteWave Foods Company (WWAV). Excluding the operating results of WhiteWave, Dean Foods’ adjusted earnings came in at 16 cents per share.
On a reported basis, including the gain from the sale of Morningstar business, the company registered earnings of $2.63 per share compared with 20 cents posted in the year-ago comparable quarter.
Quarter in Detail
Dean Foods’ adjusted net sales inched down 0.5% year over year to $2,878.8 million compared with net sales of $2,893.0 million in the comparable prior-year quarter. As per the data from USDA and the estimates of the company, the marginal fall in the top line is attributable to a decline in overall industry volumes for fluid milk. Moreover, the company’s quarterly net sales remain below the Zacks Consensus Estimate of $3,065.0 million.
Adjusted operating income for the quarter decreased 3.4% to $115.4 million from the prior-year quarter’s $119.3 million. Consequently, Dean Foods’ adjusted operating margin for the quarter contracted 10 basis points to 4.0% compared with 4.1% in the comparable prior-year quarter.
The company ended the quarter with cash and cash equivalents of $76.4 million, long-term debt of $1,797.5 million and shareholders’ equity of $969.8 million. During the quarter, the company used $100.3 million of net cash for continuing operations, while free cash flow used in continuing operations was $146.0 million.
Further, the company remains focused on curtailing its overall leverage. As of the end of the first quarter, the company's funded debt to EBITDA ratio, as defined by its credit agreements, was 2.13 times, lower than its maximum leverage covenant ratio of 5.25 times, which suggests that the company possesses adequate financial flexibility to service its debt.
Looking at the current industry volume trends, Dean Foods expects volumes to decline in the low-to-mid-single-digit range in fiscal 2013.
However, the company is focusing on efficiency and leverage reduction to drive both operating income and earnings per share. The company anticipates operating income to grow in the low-to-mid single digit range. Adjusted earnings (excluding WhiteWave’s operating results) in the second quarter of fiscal 2013 are expected to be in the range of 11–15 cents per share. For fiscal 2013, the company is anticipating adjusted earnings between 45 cents and 55 cents per share.
Other Stocks Worth Considering
Besides Dean Foods, other stocks in the food category business that are expected to perform well include:
J&J Snack Foods Corporation’s (JJSF) Earnings ESP stands at +0.90% and it carries a Zacks Rank #2 (Buy).
Campbell Soup Company (CPB) has an Earnings ESP of +1.79% and a Zacks Rank #2 (Buy).
The Hain Celestial Group, Inc. (HAIN) with an Earnings ESP of +1.61%, holds a Zacks Rank #2 (Buy).
Our proven model shows that a company may beat earnings if it has the right combination of two key components – Positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 and #3.
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