Dean Foods (DF, Financial)Â nourishes a strong and vibrant dairy industry.
A dynamic company with an entrepreneurial spirit, it is the country's largest processor and distributor of dairy products. It has thousands of customer-focused employees who take great pride in delivering fresh, nourishing and quality products to American families –Â pure and simple. It is expected to create greater shareholder returns.
Dean Foods is a leading food and beverage company and the largest processor and direct-to-store distributor of milk and other dairy products in the U.S.
Headquartered in Dallas, Dean Foods' portfolio includes TruMoo, the leading national flavored milk brand, along with well-known regional dairy brands such as Alta Dena, Berkeley Farms, Country Fresh, Dean's, Garelick Farms and cultured products Lehigh Valley Dairy Farms, Mayfield, McArthur, Meadow Gold, Oak Farms and more.
In all, Dean Foods has more than 50 local and regional dairy brands and private labels. Dean Foods also makes and distributes ice cream, cultured products, juices, teas and bottled water. The company has more than 17,000 employees.
Dean Foods reported strong third-quarter results. The volume performance was in line with the company’s expectations. The company is taking the right initiatives. Its portfolio of brands, especially with national brands of DairyPure in fresh white milk and TruMoo in flavored milk, marks competitive advantage and leverages the national scale of network and one of the nation's largest best-in-class refrigerated direct store delivery distribution systems. DairyPure has provided its sales organization with a strong selling story and value proposition to present to the customers.
Strong third quarter
The third quarter 2015 average Class I Mover, a measure of raw milk costs, was $16.38 per hundredweight, a 4% sequential increase from the second quarter of 2015 and a decrease of 30% from the prior year quarter.
Total volume across all products was 658 million gallons for the third quarter of 2015 (which was a 2% decline from the prior year quarter).
Based on the USDA's recently published category data, fluid milk volumes improved sequentially from a 2.2% decline in the first quarter to a 1.3% decline in the second quarter. Quarter-to-date through August 2015, fluid milk volumes declined approximately 0.9% year over year, on an unadjusted basis. On this same basis, Dean Foods' share of U.S. fluid milk volumes increased 10 basis points sequentially to 35.3% but decreased from 35.9% in the third quarter of 2014.
Cash flow
Net cash provided by continuing operations for the nine months ended Sept. 30, 2015, totaled $322 million. Free cash flow provided by continuing operations, which is defined as net cash provided by continuing operations less capital expenditures, was $241 million for nine months ended Sept. 30, 2015, a $282 million increase as compared to the prior year period.
Debt
Total debt at Sept. 30, 2015, net of $64 million cash on hand, was approximately $777 million. The company's funded net debt to EBITDA ratio, on an all-cash netted basis, improved sequentially to 2.09 times at the end of the third quarter of 2015 with strong operating cash flow and increased EBITDA.
Share repurchases
During the third quarter of 2015, the company utilized $53 million of cash to repurchase approximately 3.2 million shares of its common stock at an average purchase price of $16.73 per share. After taking into account the repurchases in 2014 and 2015, the company has approximately $222 million of share repurchase authorization remaining.
(Source: Company’s Website)
Factors contributing to the third-quarter success
- Volume performance in line with expectations.
- Improvements in gross profit.
- Improvements in operating income.
Focus at the moment
- Price realization.
- Initiatives to grow the brands.
- Reduce costs.
- Increase the profitability of business.
- Create shareholder value.
- Robust cost productivity agenda.
- Growing business across multiple channels.
On a concluding note
Dean Food’s customers include many of the largest and best food retailers and food service companies and distributors in the country. The company believes in the strong health and wellness credentials in dairy products, and especially in fresh milk, resonate with consumers. This is a great business to be in and one that creates a compelling operating and financial opportunity.
Disclosure: I do not hold any position in the company.
