Dallas-based branded food giant Dean Foods has posted record results for its Q2 ended 30 June, with net sales up 55% year on year to US$2.4bn.
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Diluted earnings per share (EPS) totalled US$0.72, up 31% from US$0.55 in the Q2 2001. Net income for the Q2 was US$73.2m, up 112% versus US$34.6m in the Q2 2001.
On a pro forma basis (excluding the US$6.7m restructuring charge related to plant closings in Puerto Rico and Vermont and a Dairy Group distribution facility in Virginia), Q2 diluted EPS were up 15% year on year to US$0.76. Pro forma net income grew 84% to US$77.4m, compared with US$42.1m in the Q2 2001.
“We are proud of our performance this quarter and are on track to deliver outstanding results in 2002,” said Gregg Engles, chairman and CEO. “We achieved about US$29m in merger synergies during the Q2 and anticipate that we will deliver total synergies in excess of US$100m this year, significantly more than our original estimate. As a result, we are raising our estimate for 2002 pro forma diluted EPS to a range of US$2.75 to US$2.78 per share. We expect Q3 pro forma diluted EPS to be in the range of US$0.67 to US$0.69.”
The company reported Q2 operating income of US$178.4m up 73% from US$102.9m in the Q2 2001. Pro forma operating income totalled US$185m, up 60% over pro forma operating income of US$115.6m in the Q2 2001. Pro forma Q2 2002 operating income margins were 7.87%, an increase of 26 basis points versus the pro forma results from the Q2 of last year. Operating income margin gains were due primarily to realised merger synergies and the decline in raw milk costs compared with the prior year.
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By GlobalDataFree cash flow for the quarter, defined as pro forma EBITDA less interest, taxes and capital expenditures was US$59.1m, up from US$45.3m year on year.
Dean’s long-term debt, including US$139m in current liabilities, at the end of the quarter was about US$3bn, and the Debt-to-EBITDA ratio was approximately 3.4 times. At 30 June about US$693m of the firm’s US$2.7bn bank facility remained undrawn and available for future investments.
Segment results
Dairy Group sales for the Q2 were US$1.8bn, an increase of 45% over US$1.2bn in the Q2 2001. The sales growth was due primarily to the addition of the legacy Dean dairies. Pro forma operating income in the Q2 improved 66% to US$142.4m, and pro forma operating margins increased 102 basis points to 7.92% of sales, due to synergies from the merger transaction and lower raw milk costs. The average Class I mover, as determined on a monthly basis by the USDA, declined 21% in the Q2 to US$11.25 per hundred weight in comparison to the comparable period in 2001.
Morningstar/White Wave sales were up 47% in the Q2 to US$263.8m, due primarily to the addition of legacy Dean’s National Refrigerated Products segment and White Wave.
Pro forma operating income in the second quarter for Morningstar/White Wave was US$30.8m, up 16% compared to last year, and operating margins were down 315 basis points to 11.69%, due to the previously announced phase-out of the Lactaid and Nestle brands and incremental marketing spending toward the company’s branded and value-added growth platforms, including White Wave.
Specialty Foods sales were US$177.4m and operating income was US$25.4m, or 14.3% of sales. “We are very proud of the accomplishments of our Specialty Foods segment in the Q2,” said Engles. “The Specialty Foods team has moved aggressively to reduce costs, innovate in packaging and drive profitability, resulting in substantial margin improvement over last year.”
H1 results
Dean recorded net sales growth of 55% to US$4.6bn for the H1 2002, compared with US$3bn during the H1 2001. H1 net income was US$81.3m, compared to US$56.7m in the H1 2001. Pro forma (excluding US$7.9m restructuring charges of related to plant closings and exclude a one-time charge of US$47.3m) net income for the six months totalled US$133.5m, up 82% on US$73.5m in the H1 2001.
Diluted EPS for the H1 fell to US$0.85, from US$0.94 year on year. Pro forma diluted EPS for the H1 was US$1.33, up 14% compared with US$1.17 in the H1 2001.
Dean reported operating income for the H1 of US$326.7m up 75% on US$186.8m in the H1 2001. Pro forma operating income totalled US$334.6m, up 57% over pro forma US$212.9m in the H1
2001. Pro forma operating income margins for the H1 2002 were 7.22%, an increase of 8 basis points versus the pro forma results from the H1 of last year.
