Dean Foods Company (DF) reported yet another disappointing quarter wherein high raw milk prices dragged the company’s second-quarter 2014 bottom-line results. The company posted an adjusted loss of 14 cents per share from continuing operations contrary to adjusted earnings of 26 cents in the year-ago comparable quarter. Moreover, adjusted loss was wider than the Zacks Consensus Estimate of a loss of 5 cents per share.
On a reported basis, the company posted loss of a penny from continuing operations as against a loss of 61 cents in the year-ago comparable quarter.
Quarter in Detail
Dean Foods’ adjusted net sales increased approximately 7.5% year over year to $2,393.9 million from $2,227.5 million in the prior-year quarter and went ahead of the Zacks Consensus Estimate of $2,341 million. The company’s market share of U.S. fluid milk sales volume increased 20 basis points (bps) year over year to 35.9%.
The company reported an adjusted operating loss of $5.9 million for the quarter as against adjusted operating income of $64.7 million in the prior-year quarter. The year-over-year decline in operating income was primarily due to higher raw milk prices. The raw milk cost of Class I Mover registered a year-over-year increase of 31% and touched an all time quarterly high of $23.66 per hundred-weight.
Financial Position
The company ended the quarter with cash and cash equivalents of $59.8 million, long-term debt of $986.3 million and shareholder’s equity of $675 million. During the first half of 2014, the company generated $25 million of net cash from continuing operations and $28 million of free cash flow. On an adjusted basis, the company generated about $2 million of free cash flow in the first six months of 2014.
At the end of the reported quarter, the company's funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio, as defined by its credit agreements, was 3.61 times, which was much lower than its maximum leverage covenant ratio of 5.25 times. This indicates the company’s adequate financial flexibility to service its debt.
Outlook
Looking at the current industry volume trends, Dean Foods expects higher raw milk prices and weak volumes in 2014. Therefore, the company has withdrawn its earnings guidance for 2014, for which the company had earlier projected earnings of 60 cents per share.
Furthermore, Dean Foods expects to report adjusted loss in the range of 5 cents to 15 cents per share for the third-quarter of 2014.
Other Stocks Worth Considering
Currently, Dean Foods carries a Zacks Rank #4 (Sell). Better-placed stocks in the food business include Senomyx Inc. (SNMX), J&J Snack Foods Corp. (JJSF) and Pinnacle Foods Inc. (PF), all carrying a Zacks Rank #2 (Buy).
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