Dean Foods Co. announced strong first quarter results driven by solid growth across all operating segments, and supported by tight expense control. The Company reported first quarter 2012 earnings of $0.20 per diluted share, compared to first quarter 2011 earnings of $0.14 per diluted share. On an adjusted basis, first quarter 2012 diluted earnings per share were $0.31, a 121 percent increase from the $0.14 per diluted share earned in the prior year's first quarter.
First quarter consolidated operating income totaled $123 million, compared to consolidated operating income of $106 million in the first quarter of 2011. Adjusted first quarter consolidated operating income totaled $152 million, a 42 percent increase compared to $107 million reported in the first quarter of 2011.
"Today we announced strong first quarter results, driven by stronger than forecasted growth across each of our three operating segments, and supported by tight expense control across the business," said Gregg Engles, chairman and CEO. "As a result, consolidated adjusted operating income increased 42 percent above year ago levels.
"Our financial performance was further bolstered by declining interest expense, resulting in first quarter adjusted diluted earnings per share of $0.31, more than double the previous year and the sixth straight quarter we have delivered adjusted EPS at or above our guidance."
Net income attributable to Dean Foods totaled $38 million, compared to net income of $25 million in the prior year's first quarter. Adjusted net income for the first quarter was $57 million, a 129 percent increase from $25 million in the first quarter of 2011.
Net sales for the first quarter totaled $3.2 billion, compared to $3.0 billion of net sales in the first quarter of 2011.
For the first quarter of 2012, the WhiteWave-Alpro segment reported net sales of $571 million, 13 percent higher than first quarter 2011 net sales of $507 million, and the highest net sales in the history of the segment. Strong category growth, and continued investment in brand building, innovation, and marketing drove the first quarter performance.
Among the product categories at WhiteWave-Alpro, sales in the Coffee Creamers and Beverages platform increased more than 20 percent in the first quarter, driven by strong International Delight creamers sales and augmented by the rollout of new iced coffee products. The Coffee Creamers and Beverages platform includes coffee creamers under the International Delight, Land O'Lakes, Silk and Horizon Organic brands, as well as International Delight Iced Coffee. Sales of Plant-based Beverages, which includes Silk soy, almond and coconut milk products, also increased more than 20 percent in the first quarter on accelerating growth of Silk PureAlmond. Sales of Value-Added Dairy, which includes Horizon Organic branded milk and other products, increased mid-single digits as mild winter weather resulted in higher organic raw milk supply than initially forecasted and price increases to offset higher milk costs were put into the marketplace. Alpro net sales increased mid-single digits in the first quarter on a Euro basis and were approximately flat after currency translation.
A culture of efficiency and expense control at WhiteWave-Alpro leveraged 13 percent top-line growth to 31 percent operating income growth in the first quarter. For the quarter, WhiteWave-Alpro operating income was $60 million, versus $46 million in the first quarter of 2011.
Fresh Dairy Direct
A more favorable commodity environment and a continued focus on the fundamentals of cost reduction, price realization, and sales volume growth led to a strong quarterly performance at Fresh Dairy Direct. For the first quarter, Fresh Dairy Direct fluid milk volumes increased 0.4 percent on a year-over-year basis. This compares to the balance of the industry that experienced a volume decline of approximately 2.9 percent on a year-over-year basis, based on USDA data and company estimates. Excluding the estimated impact of the September 2011 divestiture of the Waukesha facility, Fresh Dairy Direct fluid milk volumes increased 1.8 percent in the first quarter of 2012.
The pass-through of higher average commodity costs and volume growth resulted in Fresh Dairy Direct net sales of $2.3 billion, a 4 percent increase from $2.2 billion in net sales for the first quarter of 2011. The first quarter 2012 average Class I Mover, a measure of raw milk costs, was $17.38 per hundred-weight, an increase of 6 percent over the first quarter of 2011, but a decrease of 8 percent from the fourth quarter of 2011.
First quarter Fresh Dairy Direct operating income was $101 million, an 18 percent increase from the $86 million in the first quarter of 2011.
First quarter Morningstar volumes were essentially flat, reflecting strong core volume sales across both retail and foodservice channels, offset by the impact of the April 2011 divestiture of its yogurt business. Excluding the impact of the divestiture, first quarter 2012 Morningstar volume increased 16 percent from the first quarter of 2011, reflecting the Company's continued success in partnering with winning customers to drive growth. Volumes were also supported by warmer weather, which helped drive ice cream mix sales.
Core volume growth and a more favorable commodity environment drove Morningstar net sales of $325 million, a 5 percent increase over the prior year first quarter, despite the April 2011 divestiture of its yogurt business. Morningstar operating income increased 13 percent in the first quarter to $29 million, from $25 million in the first quarter of 2011.
Managements' efforts to reduce SG&A expense resulted in a significant decline in Corporate expense in the quarter. First quarter 2012 Corporate expense totaled $38 million, compared to $60 million in the year ago period. First quarter 2012 adjusted Corporate expense totaled $38 million, a 27 percent decline from the $53 million reported in the first quarter of 2011.
Net cash provided by continuing operations for the quarter ended March 31, 2012 totaled $3 million, compared to $37 million in the first quarter of 2011. Free cash flow used in operations, which is defined as net cash provided by continuing operations less capital expenditures, was $41 million, compared to $3 million in the first quarter of 2011. Management expects positive free cash flow throughout the balance of the year. A reconciliation between net cash provided by continuing operations and free cash flow used in continuing operations is included below.
Capital expenditures for the first quarter of 2012 totaled $45 million, compared to $40 million in the year ago period. During the quarter, total debt outstanding, net of cash on hand, increased by $36 million to $3.7 billion. The increase in net debt in the quarter is largely due to litigation settlement payments and a small increase in working capital. The Company's funded debt to EBITDA ratio, as defined by its credit agreements, declined to 4.41x as of the end of the first quarter versus a maximum leverage covenant ratio of 5.5x. Management continues to focus on reducing its overall leverage and now expects Dean Foods leverage ratio to be at or below 4.0x by year end.
"Given our significant momentum in the first quarter, the cautious optimism that we expressed last quarter has turned less cautious," continued Engles. "All three operating segments performed well in the first quarter, and we expect strong full year growth across the business.
"At WhiteWave-Alpro, first quarter top-line growth accelerated behind strength in our core products as well as strong early consumer interest in our new product introductions. Looking ahead, we expect continued solid top and bottom-line growth. Our Dallas plant start-up costs and marketing spend in support of new product launches will increase in the second quarter from the first quarter. Given the first quarter's strong performance, however, we now expect full-year WhiteWave-Alpro operating income growth to be in the high-teens.
"Fresh Dairy Direct continued to outperform the industry from a volume perspective. This, combined with price realization and cost reductions, resulted in strong first quarter profit growth for FDD. Looking ahead, we will continue to focus on the fundamentals of the business: volume, price realization, and cost reduction. With our outlook for a relatively more stable commodity environment through 2012, we expect continued strong growth for the second quarter and the full year. For the full year, we expect low-teens operating income growth for Fresh Dairy Direct.
"Morningstar's balanced business across foodservice and retail also produced solid first quarter results as we continue to partner with winning customers. Given Morningstar's strong start, we expect full year operating income growth in the mid-teens.
"In light of our more favorable operating outlook, our expectations for continued SG&A savings, and lower interest expense over the balance of the year, we expect second quarter adjusted earnings per share of $0.28- $0.33. We are also increasing our full year guidance to a range of $1.10-$1.20 in adjusted earnings per share."