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Dean Foods (DF) Q1 Earnings & Sales Beat, Hikes Dividend

Given the robust execution across all business operations, Dean Foods Company DF began 2016 on a solid note, posting better-than-expected top- and bottom-line results for the first quarter.

Notably, this quarter marked Dean Foods’ fifth straight earnings beat, along with year-over-year improvement in earnings, gross profit and adjusted operating income.

The company’s quarterly adjusted earnings of 45 cents per share surged 87.5% from 24 cents in the year-ago quarter and cruised way ahead of the Zacks Consensus Estimate of 38 cents. Sources revealed that the bottom line benefited from lower raw milk costs.

On a GAAP basis, the company’s earnings came in at 43 cents per share, as against a loss of 78 cents reported in the year-ago quarter.

Quarter in Detail

Net sales declined 8.4% year over year to $1,878.8 million, while coming slightly ahead of the Zacks Consensus Estimate of $1,877 million. Notably, this marked the company’s first sales beat after five quarters of lower-than-expected results. The year-over-year decline in the top line was due to soft volumes, which dropped 3.2% to 641 million gallons from 662 million gallons in the prior-year quarter.

However, raw milk costs improved during the reported quarter and fluid milk volumes rose on a sequential basis. As expected, the Class I Mover, which is a measure of raw milk expenses, fell 11% sequentially and 14% year over year to $14.49 per hundred-weight.

Looking ahead, management expects the average Class I Mover for the second quarter of 2016 to come in at $13.49 per hundred-weight, representing a 7% and 15% decline on a sequential and year-over-year basis, respectively. However, total volume for the second quarter is anticipated to dip in the low-single digits.

Backed by efficient cost productivity initiatives, adjusted gross profit jumped 5.4% to $504.1 million, while the adjusted operating income soared nearly 61% to $83.1 million in the first quarter.

Financial Position

Dean Foods ended the quarter with cash and cash equivalents of $84.6 million, long-term debt including current maturities of about $835 million, and shareholders’ equity of $577.9 million.

During the quarter, the company generated nearly $46.2 million of net cash from operating activities and $29.2 million of free cash flow after investing roughly $17.1 million as capital expenditure.

Additionally, management announced a 29% hike in its quarterly dividend to 9 cents per share from 7 cents paid earlier.

At the end of first-quarter 2016, the company's net debt to bank EBITDA ratio was 1.72 times, representing a sequential improvement.

Other Developments

In an attempt to enhance its dairy brand portfolio, Dean Foods inked a deal to buy Friendly's Ice Cream manufacturing and retail operations, for about $155 million. The deal, anticipated to conclude at the end of second-quarter 2016, is expected to augment Dean Foods’ margins and bottom line immediately after the acquisition. Management expects this buyout to boost earnings by roughly 6 cents in 2016.


Management remains impressed with Dean Foods’ progress, given its solid operational and financial results in the reported quarter. These factors have strengthened Dean Foods’ balance sheet even further.

Taking cue from this strength, focus on cost management and constant brand building initiatives, the company remains on track to consolidate its position in the dairy industry, and boost shareholder value.

Considering all the aforementioned factors, including the expected fall in raw milk costs and volumes, management envisions second-quarter 2016 adjusted earnings to range from 32–40 cents a share.

Zacks Rank

Dean Foods currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the consumer staples sector include Post Holdings Inc. POST and B&G Foods Inc. BGS, each with a Zacks Rank #1 (Strong Buy), and Campbell Soup Company CPB, with a Zacks Rank #2 (Buy).

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DEAN FOODS CO (DF): Free Stock Analysis Report
CAMPBELL SOUP (CPB): Free Stock Analysis Report
B&G FOODS CL-A (BGS): Free Stock Analysis Report
POST HOLDINGS (POST): Free Stock Analysis Report
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