Dean Foods Company‘s (DF) adjusted earnings of 18 cents per share for the third quarter of fiscal 2011 was well above the earnings of 13 cents recorded in the year-ago quarter. The quarterly earnings also surpassed the Zacks Consensus Estimate of 15 cents a share.
However, on a reported basis, including one-time items, the company registered a loss of $8.39 per share.
Quarterly Discussion
Dean Foods’ quarterly net sales grew 11.7% year over year to $3,410.8 million, beating the Zacks Consensus Estimate of $3,316 million. The growth was primarily a pass-through of increased commodity costs at Fresh Dairy Direct-Morningstar to consumers in the form of higher prices. Moreover, strong top-line performance at WhiteWave-Alpro also boosted the revenue growth. However, the increases were partially offset by sluggish volume at Fresh Dairy Direct-Morningstar.
Segment-wise, during the third quarter, Dean Foods’ Fresh Dairy Direct-Morningstar sales increased 12.0% to $2.9 billion while WhiteWave-Alpro’s sales climbed 11% to $531 million.
Adjusted operating income for the third quarter increased 5% to $108 million from the prior-year quarter’s $103 million. The increase resulted primarily from a $13.5 million operating income growth at WhiteWave-Alpro and $12.5 million lower corporate expenses. This was partially countered by a $21.2 million drop in operating profit at Fresh Dairy Direct-Morningstar.
Operating margin contracted to 3.2% from 3.4% in the prior-year quarter. Dean Foods’ adjusted operating expenses for the quarter inched down 2% to $633.4 million compared with $646.5 million in the prior-year quarter.
Dean Foods ended the quarter with cash and cash equivalents of $107.7 million, long-term debt of $3,850.8 million, shareholders’ equity (deficit) of ($63.1) million, excluding the non-controlling interest of $4.9 million. During the nine-month period, the company generated $245.6 million of cash from operation and free cash flow of $30.2 million while it utilized $215 million toward capital expenditure and $218.1 million in net debt repayment.
Outlook
For the fourth quarter of fiscal 2011, Dean Foods expects earnings to be in the range of 20 cents to 25 cents a share that dovetails with the Zacks Consensus estimate of 24 cents a share. Moreover, the company now forecasts full-year 2011 adjusted earnings in the range of 69 cents to 74 cents a share, from its earlier guidance range of 67 cents to 75 cents a share.
The current Zacks Consensus Estimate of 69 cents a share for full-year 2011 coincides with the lower end of the company’s guidance range.
Zacks Rank
Dean Foods, which competes with Kraft Foods Inc. (KFT), currently has a Zacks #3 Rank, implying a short-term Hold rating on the stock. This corresponds with our long-term Neutral recommendation on the stock.
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