Zacks_Analysts' Blog : Dean Foods Ahead by a Penny - Analyst Blog

Dean Foods Company's (DF) adjusted earnings per share for the second quarter fiscal 2011 came in at 18 cents, well behind 29 cents recorded in the year-ago quarter but beating the Zacks Consensus Estimate of 17 cents a share. Including special charges, loss per share for the quarter came in at 28 cents a share.

Quarterly Discussion

Dean Foods’ quarterly net sales grew 11.6% year over year to $3,298.8 million, beating the Zacks Consensus Estimate of $3,160 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 and record top-line performance at WhiteWave-Alpro that were partially offset by weedy volume at Fresh Dairy Direct-Morningstar.

Segment-wise, during the second quarter, Dean Foods’ Fresh Dairy Direct-Morningstar sales increased 12.0% to $2.8 billion while WhiteWave-Alpro’s sales also climbed 12% to $514.0 million.

Adjusted operating income for the second quarter declined 14.0% to $114 million from the prior-year quarter’s $133 million. The decline resulted primarily from a $31.0 million drop in operating profit at Fresh Dairy Direct-Morningstar. This was partially countered by a $6 million operating income growth at WhiteWave-Alpro and $6 million lower corporate expense.

Operating margin contracted to 3.5% from 4.5% in the prior-year quarter. Dean Foods’ adjusted operating expenses for the quarter rose 23.9% to $776 million compared with $626.4 million in the prior-year quarter.

Dean Foods ended the quarter with cash and cash equivalents of $115.8 million, long-term debt of $3,828.9 million, shareholders’ equity of $1,533.8 million and non-controlling interest of $15.1 million. During the six-month period, the company generated $179.6 million of cash from operations and free cash flow of $60.9 million while it utilized $118.6 million toward capital expenditure and $239.5 million in net debt repayment.

Outlook

For the third quarter of fiscal 2011, Dean Foods expects to earn in the range of 12 cents to 17 cents a share. The company now forecasts full-year 2011 adjusted earnings in the range of 67 cents to 75 cents a share, an increase from 55 cents to 65 cents a share guided earlier.

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.