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Edited Transcript of DF earnings conference call or presentation 6-Aug-19 1:00pm GMT

Q2 2019 Dean Foods Co Earnings Call

DALLAS Sep 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Dean Foods Co earnings conference call or presentation Tuesday, August 6, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eric Beringause

Dean Foods Company - President, CEO & Director

* Jody L. Macedonio

Dean Foods Company - CFO & Executive VP

* Suzanne Rosenberg

Dean Foods Company - VP of IR & External Communications

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Conference Call Participants

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* Amit Sharma

BMO Capital Markets Equity Research - Analyst

* Bryan Cecil Hunt

Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst

* Christopher Robert Growe

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Analyst

* John Joseph Baumgartner

Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst

* Kenneth B. Goldman

JP Morgan Chase & Co, Research Division - Senior Analyst

* Matthew Jacob Fishbein

Deutsche Bank AG, Research Division - Research Associate

* Robert Bain Moskow

Crédit Suisse AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Dean Foods Company Second Quarter 2019 Earnings Conference Call. Please note that today's call is being recorded and is also being broadcast live over the Internet on the Dean Foods corporate website. This broadcast is the property of Dean Foods. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of the company is strictly prohibited.

At this time, I would like to turn the call over for opening remarks to the Vice President, Investor Relations and External Communications, Suzanne Rosenberg. Please go ahead.

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Suzanne Rosenberg, Dean Foods Company - VP of IR & External Communications [2]

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Thank you, Latif, and good morning, everyone. Thanks for joining us on our second quarter 2019 earnings conference call. This morning, we issued an earnings press release, which is available along with a slide presentation, in the IR section on our website at deanfoods.com. A replay of today's call will be available on our website beginning this afternoon.

Before we begin, I would like to advise you that all forward-looking statements made on today's call are intended to fall within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. Information concerning those risks is contained in the company's filings with the SEC.

In addition, we will be discussing operating and financial results on an adjusted basis. A reconciliation of these non-GAAP measures referenced during today's discussion to the most directly comparable GAAP measures can be found in today's earnings press release on our website.

Participating with me in the prepared section of today's call are our newly appointed President and CEO, Eric Beringause; and Jody Macedonio, our Chief Financial Officer. Eric will start us off with an introduction. Jody will then review our second quarter financial results before turning the call back over to Eric for other closing remarks. We will then open the call to your questions.

Eric?

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Eric Beringause, Dean Foods Company - President, CEO & Director [3]

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Thank you, Suzanne. Good morning. I was told many of our employees are listening in on the call. I'd like to take the opportunity to say hi, and I'm looking forward to meeting all of you. Dean is a great, big, beautiful business operating in a very challenging environment. I can't wait to get Dean growing again.

Dean Foods is one of the most prominent names in the dairy industry, and I am excited to join the company at this important juncture. With nationally recognized brands and some of the best service in the industry, it is no coincidence that Dean Foods has become one of America's largest dairy providers. While this business and the overall category have certainly faced challenges, I see tremendous opportunities ahead for the company.

Just a bit of background on me. I've spent my career working in food, beverage and consumer products industries, and I know the dairy space particularly well. Many of my friends say I must have milk flowing through my veins. I have more than 30 years of transformational leadership and operational experience at a broad range of blue-chip companies in the food, beverage and consumer products industries, including expertise in food processing, private label and branded along with contract manufacturing. Most recently, I served as CEO of Gehl Foods, a large producer of dairy-based beverage and food products where I oversaw a transformational change and significant growth in the business.

Since I began in this role last week, I've already had the opportunity to get to know many of our employees. Over the next several weeks, I will be out on the road visiting our facilities and meeting many of our key customers, suppliers and business partners. I've already heard some of their views on the industry, the current environment and specifically Dean Foods' position. These discussions have reinforced to me that there is significant potential in the business, and I am excited to hit the ground running as we work to continue transforming the business.

I would also like to note that the talented team we have in place has made for a smooth transition by laying the groundwork that will position our company for future success.

While Dean Foods has a strong foundation of assets and brands, it's clear to me that we need to take a fresh look at the business and make changes that will allow us to succeed in today's competitive environment. It is no secret that our industry environment continues to present challenges to our business, and we must look for opportunities to accelerate our transformation to position Dean Foods to win. I look forward to working closely with the team to understand the processes and systems at work at Dean Foods. While it's still too early for me to comment on the specific actions and adjustments that we will need to make, I am confident that we have a talented team in place to make decisions and execute plans that will create value for all of our stakeholders.

With that, I will turn things over to Jody to review our second quarter results.

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [4]

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Thank you, Eric, and good morning, everyone. And Eric, welcome to the Dean Foods team. I know I speak for the entire leadership team that we look forward to working with you. Today, I'll walk us through the financial results as well as review the balance sheet and cash flow performance.

As we stated on our last quarterly call, we moved past the inflection point in our business transformation in the fourth quarter of last year. Subsequently, we've made steady progress as we delivered sequential improvement in the first quarter of 2019 and now another quarter of sequential improvement in Q2.

As anticipated, adjusted second quarter results also included positive quarterly free cash flow. Our adjusted operating results are gaining traction as we continue to execute our enterprise-wide cost productivity program to address the deleverage we are experiencing from volume pressure and higher dairy commodity inflation.

In the second quarter, total Dean Foods volume was down significantly year-over-year, reflecting ongoing volume pressure, coupled with the overlap of certain customers exiting our system last year. The volume decrease reflects an accelerated fluid milk category decline. The category is currently undergoing significant changes as consumers have more food and beverage options to choose from than ever before. This leads to a dynamic retail and competitive landscape that we believe will continue to evolve.

In recent years, the overall category has declined about 2% annually. And in Q2, we saw an acceleration of this trend. The dairy category continues to be pressured by very low retail price points on private-label milk, while at the same time, accelerated dairy commodity inflation is putting additional pressure on margin.

In Q2, Class I raw milk costs were up approximately 12% versus year ago and up 6% versus Q1. We are now projecting Class I raw milk cost inflation in Q3 to increase 19% versus prior year, significantly higher than we originally anticipated. Earlier in the year, we implemented net pricing actions to help offset some of this inflation. Moving forward, we'll continue to explore other initiatives, including product mix opportunities, to further mitigate inflationary pressure.

Let's spend a minute on what's happening in the retail environment. Retailer private-label margin over milk is a key industry metric that looks at the average retail price of private-label milk versus the per-gallon Class I cost of milk. The difference between these 2 prices is the margin dollars available to cover retailer and processor costs to generate profit. As retailers continue to invest in private-label milk to drive foot traffic, the retailer margin -- private-label margin over milk has contracted to $1.26 in June, matching a historic low. As retailers continue to fund pricing promotions to drive traffic into their stores, they're draining their own profitability. As a result, we believe these margins are unsustainable and expect it to alleviate over time.

Importantly, we believe this makes our brands even more important to the profit pool of our customers. Keep in mind, any change in raw milk costs will predominantly impact our branded business.

So let's turn now to our Q2 adjusted results. We reported $378 million in adjusted gross profit in Q2, a decline of 13% versus prior year driven primarily by lower volume, the impact of deleverage and higher dairy commodity inflation. Below the gross profit line, total company adjusted operating costs and expenses for the quarter increased by $8 million. Within adjusted selling and distribution, expenses decreased by $2 million driven by lower marketing spend and a shift to digital advertising, which was partially offset by higher logistic costs associated with our network consolidation.

Our adjusted G&A costs in the second quarter were flat to Q1 and $9 million higher than year ago. The year-over-year increase primarily reflects professional fees associated with our plant consolidation efforts combined with employee-related expenses. During the second quarter, we executed a head count reduction and will begin to see the savings related to this initiative in the second half of this year.

In total, we reported an adjusted operating loss of $27 million in the second quarter. While these results were down significantly year-over-year, it does reflect a $9 million sequential improvement from the first quarter of this year. This marks a continuation of the sequential improvement we saw in our Q1 operating results versus Q4 of last year.

The company's second quarter adjusted loss per share were $0.36. On a sequential basis, the loss per share narrowed from our results in Q1.

Turning now to free cash flow results. The positive quarterly free cash flow generated in the second quarter primarily reflects strong working capital improvement. While inventory was down on a sequential basis, we anticipate further reductions particularly in ice cream as we move throughout the year. Like many of our competitors, our ice cream business was negatively impacted by the cold and wet spring across the United States in the second quarter.

Full year capital expenditures remain on track with our expected range between $95 million and $110 million. While second quarter results include positive free cash flow, given our expectations for continued volume pressure and higher input costs, we now expect to be a net user of cash for full year 2019.

From a balance sheet perspective, we ended Q2 with net debt of $968 million versus $991 million in Q1 driven by working capital management. As expected, at the end of June, we announced the successful increase in our borrowing base availability to $265 million under our senior secured revolving credit facility by completing post-closing appraisal work. This expansion increases our financial flexibility and further enhances our liquidity. In addition, our existing $450 million accounts receivable securitization facility provides us with another source of flexible, low-cost access to capital. Together, these facilities provide us with the resources to continue to execute our priorities as we take meaningful actions to drive our plan forward and transform our company. As of June 30, we reduced our revolver borrowings to $286 million, a $27 million reduction from Q1.

In conclusion, we're actively working to address current market conditions while simultaneously moving forward on our strategic plan where we continue to make improvement. We expect our initiatives to accelerate during the second half of this year, and we continue to reset our cost base and drive supply chain productivity to be more agile and cost-efficient. As we implement these initiatives, we will continue to focus on maintaining the highest levels of quality, value and service that we deliver to our customers, which is paramount to our success.

Before I turn the call back to Eric, I want to briefly touch on our strategic alternatives review. We are conducting a thorough and comprehensive review of opportunities to create value for Dean Foods, our shareholders, our company and other stakeholders. That said, as previously stated, we have not set a timetable for concluding the review. We look forward to updating you after decisions are made.

With that, I'll now turn the call back to Eric for closing remarks. We'll then open up the call to questions. Eric?

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Eric Beringause, Dean Foods Company - President, CEO & Director [5]

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Thanks, Jody. In closing, we know that Dean Foods can and must successfully transform itself. And I know we have significant work to do to ensure that we deliver on our commitments to our customers and our stakeholders. I'm excited for what our team will accomplish together as we continue to position Dean Foods for future growth and success. Thank you in advance for your support.

As you know, I've only been with the company for a little over a week, and so I will defer the majority of your questions to Jody this time around. With that, I'll now turn the call over to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Bryan Hunt of Wells Fargo Securities.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [2]

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I was wondering if you could discuss what liquidity was as of quarter end or as of the period when you expanded the revolver to $265 million.

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [3]

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We shared a slide with you this morning that shows what our revolver borrowings are, but we'll have all of that information for you in the Q later today.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [4]

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Okay. And then on a follow-up, can you discuss what the change in -- to your free cash flow negative for the year implies about the second half free cash flow? Are you still anticipating the second half to be free cash flow positive, just not to overcome the outflow in Q1?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [5]

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Yes, yes. We -- for the second half, we are anticipating positive free cash flow, but it can't overcome our performance in the first half.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [6]

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And then one more follow-up since I didn't get anything on the first question. In the press, there's reports that you've sold Garelick Farms as well as a plant in Huntley, Illinois. Have those asset sales been reflected in the year-to-date asset sale numbers? Or are those pending?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [7]

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Neither of those are true. So no, they haven't been reported.

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Operator [8]

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Our next question comes from the line of Ken Goldman of JPMorgan.

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Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [9]

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Jody, I wanted to follow up on your commentary about retailers. I'm going to paraphrase a little bit here, but you've sort of talked about how they're not making enough money on milk right now and that as a result, you expect them to potentially change the way they think about pricing and going to market with milk as the loss leader. So again, those are my words, not yours, but that is the gist of it, I think.

So my question is, this has been going on for years. It's been getting worse for years, it feels like to us anyway. What evidence do you have besides that margins aren't great in the milk business that suggests that retailers will change? And the reason I'm asking is so many of them seem content to use it as a loss leader even though the margins on it aren't great. I'm just not sure what necessarily changes actually.

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [10]

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It's a combination of things. With the retailer margin over milk reaching such historic lows, down at such levels that we believe most retailers -- and this is predominantly related to private label, by the way. This is not associated with the branded part of the business. Those that are lowering their prices on private label and keeping them so low to drive traffic, it -- we don't believe it's sustainable. And if you look at the charts that we had shared with you, over time, you can see that retailers do correspond. And it's cyclical in nature. They will choose something else to be a traffic driver.

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Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [11]

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Okay. And then my follow-up is, you talked about price gaps versus private label. As we look at Nielsen data, it seems to suggest that price gaps for Dean's milk versus other branded milk have widened as well, not necessarily in your favor. So I was just wondering what your thoughts were on that or whether that's something that you may need to take steps to alleviate.

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [12]

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We do watch our price gaps. It's an important metric that we look at in that price gaps really widen because private label has gone down, not because the branded price has gone up. So we'll monitor that from time to time and make choiceful decisions going forward.

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Operator [13]

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Our next question comes from Robert Moskow of Crédit Suisse.

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Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [14]

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Eric, I had a question. I guess you probably have seen at least the preliminary findings of the business review that's been going on for several months. Do you have any opinions on what the conclusions of that review are or any insights as to where -- whether or not you might have to redo it, I guess, based on your perspective?

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Eric Beringause, Dean Foods Company - President, CEO & Director [15]

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Yes. Per what I mentioned before Q&A started, and I've been with the business a little over a week, so that's still something that we're assessing.

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Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [16]

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Okay. And then another question for Jody. The inflation in dairy, it's up to $17 a hundredweight. It was $16, and it was $15 before that. It's not that sharp of an increase. In the past, I would have thought that Dean would just be able to increase price, and that would -- that those prices would be increased at retail pretty quickly. Has it become more difficult now to cope with a ramp like that, which isn't that steep?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [17]

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Well, first off, I just want to clarify that we do pass through the dairy commodity inflation on our private-label business. That's the business model that we operate on. With respect to retailers passing the pricing on, that is their choice. We can't -- we do not have any input on what a retailer prices their milk at. So that's their choice. So it -- when it's 19% quarter-over-quarter in a very steep increase in a time where volume's declining in the category, that puts even more pressure on the margins.

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Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [18]

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Puts pressure on your branded margin, you mean?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [19]

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It puts pressure on the entire business, right, because when the category is shrinking in total, everyone is going for a smaller pie.

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Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [20]

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But you're raising price on private label. It is passing through, and then the retailer decides just not to pass it through to the consumer. So I guess theoretically, half your business must be able to offset that inflation. Are you just saying that there's just less volume, so therefore, it's less profitability net for Dean?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [21]

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Yes. We're being impacted by the volume decline.

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Operator [22]

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Our next question comes from Rob Dickerson of Deutsche Bank.

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Matthew Jacob Fishbein, Deutsche Bank AG, Research Division - Research Associate [23]

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It's Matt Fishbein on for Rob. Congrats, Eric.

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Eric Beringause, Dean Foods Company - President, CEO & Director [24]

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Thank you.

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Matthew Jacob Fishbein, Deutsche Bank AG, Research Division - Research Associate [25]

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Eric, thinking about the present-day Dean Foods as the result of industry consolidation, the value behind the idea 15 years ago as we understand it, that was the company could leverage scale and reduce regional overhead and advertising and marketing national brands while supporting the country's largest retailers. And that model was supposed to help the company ride out raw milk cost cycles and periods of aggressive retailer and competitor actions. And totally appreciate you've only been at Dean for a week, but since you've taken on this challenge on both a personal and professional level at this stage of Dean's story, very interested in learning your perspective on whether or not that national model is still relevant today, what's maybe changed structurally that's caused that old model to break down in your view, especially given your experience in the dairy industry, and perhaps more about the lens that you'll be using to identify how that model can be tweaked further, presumably so that there's upside to being a national fresh milk processor more than just remaining a going concern. I may have one for Jody, too.

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Eric Beringause, Dean Foods Company - President, CEO & Director [26]

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Yes. So per the earlier comment, clearly still assessing many of the things you referenced. Obviously, in a business this size, there's huge advantages to scale. The difficult position the industry is in right now is due to the declining category consumption, what happens vis-à-vis that scale and your fixed cost base. So that's something that we continue to assess.

And clearly, there's opportunities to grow the business. I will refer to this as a target-rich industry for private-label and branded products. And there's also more opportunities for cost reduction, intelligent cost reduction within the business as well.

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Matthew Jacob Fishbein, Deutsche Bank AG, Research Division - Research Associate [27]

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Okay. I appreciate that color. And Jody, while, I guess, an EBITDA margin of 0.3% in Q2 is technically a sequential improvement from negative 0.2% in Q1, can you help us understand exactly what's improving sequentially? And given that improvement, can you help us better understand the reason behind the change to your cash flow outlook for the year? I know you've mentioned volume pressure and cost inflation, but I feel like the volume pressure and cost inflation, it would have to change relative to how you saw it 3 months ago. And I mean doesn't really look too much different from our point of view. So any color you can give us on that? And based on your current view of things, will 2020 be a cash flow-positive year? I figure it might be fair to ask since we're only about 3.5 months away at this point.

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [28]

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Okay. So I'm going to work in reverse. So thank you, Matt, for your questions. So I'm not going to comment on 2020. It's too early to be commenting on that so far.

With respect to our outlook change, clearly, what we're trying to clearly communicate to you all is that with the accelerated category decline that we saw in Q2, combined with the higher Class I dairy commodity inflation, I think -- Ken commented the $17 wasn't that much. The Class I raw milk per hundredweight is the highest it's been since the beginning of 2015, so it is significant. And it's changing our outlook from -- and impacting our cash flow forecast for the balance of the year. So it's a combination of the volume decline that we're experiencing and the -- with the category deterioration, we're assuming that will continue. We are also seeing that the higher input costs are changing our outlook as well.

But let's not forget, we are actively addressing these negative factors with a significant cost productivity program. And we do expect that to ramp up in the second half of this year. We spent a lot of time in the second quarter designing a program that we are working on to support our second half initiatives. And so we fully expect that to improve the performance in the second half.

I may have missed your first point, Matt. So if you want to reask that, that's fine.

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Matthew Jacob Fishbein, Deutsche Bank AG, Research Division - Research Associate [29]

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No. Just wondering, again, what the sequential improvement really was.

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [30]

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Okay. That's -- yes, sure.

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Matthew Jacob Fishbein, Deutsche Bank AG, Research Division - Research Associate [31]

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What factors are improving relative to last quarter and the quarter before that?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [32]

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We did have significant improvement from some of our cost productivity initiatives that we initiated at the beginning of the year. We continue to see, as our plant consolidation efforts are behind us, so we saw improvement in our manufacturing operations. We saw improvement from some of our productivity initiatives that improved our net revenue performance.

As I spoke about on the last call, we had a new trade promotion system that we had just implemented at the beginning of this year. And we're seeing some of the benefits of that read through as well as our procurement spending efforts have been driving significant productivity. As a reminder, last year, Dean Foods set up a non-procurement team here based in Dallas. We did focus on driving productivity in the nondairy aspects of the business, so packaging, other raw materials like resin. And they've been very effective, and we're pleased with their results.

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Operator [33]

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Our next question comes from Amit Sharma of BMO Capital.

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Amit Sharma, BMO Capital Markets Equity Research - Analyst [34]

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Jody, if I didn't mishear, you said category was down 2%, fluid milk category was down 2% in the quarter. Was that right?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [35]

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It's actually -- it was down further than that. It's been trending down for the last couple of years at down 2%. It was down more like 3% on a USDA basis.

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Amit Sharma, BMO Capital Markets Equity Research - Analyst [36]

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And is Dean Foods share, including brand and private label, is that trending down as well, so your volume declines are faster than the category?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [37]

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It's much harder. We never quote private-label share. That's a much harder number to get at. But our branded business for DairyPure is holding share both on a volume basis and on a dollar basis.

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Amit Sharma, BMO Capital Markets Equity Research - Analyst [38]

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Okay. And then from a cost perspective, G&A was up $9 million in the quarter. Can you talk about that, like how G&A is higher and -- when profitability is down so aggressively?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [39]

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Yes. So I mentioned that -- perhaps if you listened on our Q1 call, we had said that we were going to engage a third-party firm to help us with addressing some of the plant consolidation efforts that needed to take place. And so in Q2, we -- our G&A was impacted by the professional services associated with those efforts as well as some additional employee-related expenses.

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Amit Sharma, BMO Capital Markets Equity Research - Analyst [40]

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So expect that to go down in the back half then? Are these changes...

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [41]

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Yes, yes. And I also -- as you may have missed, in June, we did a head count reduction here. And we do expect to see benefits of that read through the P&L in the second half of this year.

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Amit Sharma, BMO Capital Markets Equity Research - Analyst [42]

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Got it. And then just one for Eric. Eric, understand completely that you've only been here for a week, so I won't ask you questions here. But if you look back onto your career, like what are some of the learnings that you can bring forward that can help Dean Foods especially in the environment that we are in today?

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Eric Beringause, Dean Foods Company - President, CEO & Director [43]

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Yes. In a nutshell, basically, on the commodities side of the business, you need to be an efficient, productive, low-cost provider certainly vis-à-vis your competitors in that we need to move swiftly and intelligently with growth projects, whether it's related to cost reduction or growth related to new products on both the private-label side as well as the branded side.

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Amit Sharma, BMO Capital Markets Equity Research - Analyst [44]

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And how long do you think it takes to formulate or implement a strategy like that?

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Eric Beringause, Dean Foods Company - President, CEO & Director [45]

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Not long.

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Amit Sharma, BMO Capital Markets Equity Research - Analyst [46]

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Okay. That's good. I look forward to hearing more from you on that then.

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Eric Beringause, Dean Foods Company - President, CEO & Director [47]

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Thank you.

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Operator [48]

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Our next question comes from John Baumgartner of Wells Fargo.

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John Joseph Baumgartner, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [49]

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Eric, when we look at this business, it seems that replacement value may be pretty well above Dean's public market valuation. But Dean has also been considering strategic alternatives for a while now without any takers even at this valuation. So I hear the argument on scale, but we've also seen a 10-year contraction in profit margins. So even though you're new to the company, I'm really curious what your industrial experience and initial impressions may be that would lead you to think where the market has it wrong.

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Eric Beringause, Dean Foods Company - President, CEO & Director [50]

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Yes. I mean there's overcapacity in the industry. That's clear. So you will see capacity over time coming out short of a growth starting again in the category. And scale, to some degree, is a -- can be a double-edged sword. As you're growing in a large category, you get a lot of benefits from it. But in a shrinking category, you have to take costs out accordingly. And on a -- from a strategic review perspective, I really can't talk about that at this time.

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John Joseph Baumgartner, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [51]

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Fair enough. I mean, Jody, just wondering if you could put a little bit more detail to the enterprise savings program. We haven't really had a real granular update on that in a while. Can you quantify the savings to date, maybe how much remains and maybe the phasing from here?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [52]

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What I can tell you is the cost productivity efforts are what you see reading through the P&L. We are making progress. It hasn't been articulated in detail because we're the only public dairy company, so we're not going to share our programs on calls like this. But we've been executing our program up and down the P&L.

As I mentioned on a previous question, we've seen benefit from being able to get better returns on our trade promotions. We have seen benefits from our procurement initiatives. We have made tremendous progress on our plant consolidation and to return to performance levels pre-consolidation. So we feel good about that and have more to go.

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Operator [53]

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Our next question comes from Chris Growe of Stifel.

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Christopher Robert Growe, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Analyst [54]

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I just had a couple of mostly follow-on questions. I wanted to ask, first of all, with higher milk prices, is that -- do you believe that's going to stay this focused on private label? And do you believe it forces higher prices at retail? At some point, that gap just can't be absorbed by the retailers obviously. I know -- I'm not looking for the exact date and time, but just trying to understand, is this the sort of recipe for improving the pricing dynamic at retail?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [55]

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Historically, the retailers respond to the higher prices at some point, and we would expect that, that would happen again. This business is cyclical. If you look back on the chart that we show up here on our webcast, it would validate that. But we can't comment as to when.

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Christopher Robert Growe, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Analyst [56]

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And then I just had a question about the volume declines for the category. With prices going higher, if anything, for the branded milk, do you believe that's going to weaken the volume outlook for the business?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [57]

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I think the recent category trends that we are seeing is really a shift in how consumers are shopping and what they're buying. And particularly in Q2, we saw some of the volume shift to waters. So there's more choices than ever before. Whether it's sustainable, we'd like to think that the consumers would really see the value. I mean there's great value right now in the private label in particular for their shoppers to grow that category.

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Christopher Robert Growe, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Analyst [58]

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Okay. I just had one quick follow-up if I could. You talked about the cash availability that you have available to the company. I think it's through the revolver. Are there any debt covenants we need to be aware of? I'm just wondering how the term being cash flow negative for the year affects that outlook.

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [59]

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Not really. I think all of those details are provided for you in the Q. The new revolver provides us with tremendous amount of flexibility. We -- and we removed many of the covenants that we had previously.

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Christopher Robert Growe, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Analyst [60]

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And the cash flow negative does not affect that in any way for the year, correct?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [61]

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Not from a covenant standpoint, no.

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Operator [62]

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Our next -- our final question comes from the line of Ken Goldman of JPMorgan.

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Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [63]

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Just a quick follow-up for me. Jody, you spent very little and the company spent very little on CapEx as a percentage of sales really over the last decade or more, at least compared to most fluid companies. And the consistent message we get from people in the industry is that yes, Dean has some great plans, but it also has some that maybe are a little less efficient. So yes, I just wanted to follow up on your comment about improvements up and down the P&L. I appreciate those, but I wanted to understand, does Dean need to invest really meaningfully in some of its facilities to become, I guess, a consistent low-cost producer kind of across the board? Or in your view, is that not something that's being strongly considered right now?

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Jody L. Macedonio, Dean Foods Company - CFO & Executive VP [64]

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I think the CapEx plan that we have, we said that was going to be between $95 million and $110 million. We spend about anywhere from 55% to 65% of that on maintenance capital. We need to keep in mind, we've been spending around that $100 million and $120 million range for the last several years, but we have 21 fewer plants than we did in 2013 because there's not a need for as much capital. So -- and also, I think you have to -- while I can appreciate that the metric as a percent of net sales is valid for most companies, with the impact of the commodity price and impact in net revenue for us, it's not as valid.

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Operator [65]

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At this time, I'd like to turn the call over to CEO Eric Beringause for closing remarks. Sir?

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Eric Beringause, Dean Foods Company - President, CEO & Director [66]

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With that, I'd like to thank you again for your interest, and we're looking forward to speaking with you next quarter. Thanks very much.

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Operator [67]

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Thank you, sir. And thank you, ladies and gentlemen. That does conclude today's conference. Thank you for your participation, and have a wonderful day. You may disconnect your lines at this time.