Dean Foods Co. (NYSE: DF) announced second quarter 2014 results.
The Company reported a second quarter 2014 diluted loss from continuing operations attributable to Dean Foods of $0.01 per share, compared to second quarter 2013 diluted loss of $0.61 per share. On an adjusted basis, the second quarter 2014 diluted loss from continuing operations was $0.14 per share, compared to second quarter 2013 adjusted earnings of $0.26 per share.
Second quarter 2014 operating loss totaled $4 million, compared to second quarter 2013 operating income of $44 million. Second quarter 2014 adjusted operating loss totaled $6 million, compared to income of $65 million in the year-ago period.
"The second quarter was even more challenging than we had originally anticipated. This is by far the most difficult operating environment in the history of the company, reinforcing the importance of the initiatives we have underway," said Gregg Tanner, chief executive officer of Dean Foods.
Chris Bellairs, chief financial officer of Dean Foods, added, "As a result of the extreme dairy commodity environment, we face unprecedented challenges, including softening category volumes, mix shift out of our brands and significant cost friction."
Net loss attributable to Dean Foods totaled $1 million for the second quarter of 2014 compared to a $57 million net loss attributable to Dean Foods for the year- ago period. On an adjusted basis, second quarter net loss attributable to Dean Foods totaled $13 million, compared to $24 million of net income attributable to Dean Foods for the second quarter of 2013.
Net sales for the second quarter of 2014 totaled $2.4 billion, compared to $2.2 billion of net sales in the second quarter of 2013.
Dean Foods' share of U.S. fluid milk sales volume increased to 35.9 percent during the second quarter from 35.7 percent in the first quarter of 2014. Industry fluid milk volumes, through the two months ending in May, declined approximately 4.0 percent year-over-year on an unadjusted basis, based on USDA data. On a full quarter same basis, Dean Foods' unadjusted fluid milk volumes declined 4 percent on a year-over-year basis. This quarter's volumes continue to reflect the negative impact of the RFP-driven volume loss from a significant customer in 2013. Excluding the impact of the RFP and another customer's decision to vertically integrate last year, our fluid milk volumes decreased 0.3 percent in the quarter, significantly better than the overall category's volume decline.
The Company continues to make solid progress against its accelerated cost reduction agenda. Since announcing in the first quarter of 2013 its intention to close eight to twelve (10-15 percent) of its manufacturing facilities by mid-2014 the Company has closed twelve plants. Four of the twelve closures occurred in June and July of this year. As we move beyond our accelerated cost reduction agenda, we expect to return to our normal optimization activities.
The second quarter 2014 average Class I Mover, a measure of raw milk costs, was $23.66 per hundred-weight, an increase of 31 percent from the second quarter of 2013, and 6 percent above the first quarter 2014 level. The second quarter 2014 average was the highest quarterly Class I Mover average in the history of the U.S. dairy industry.
Consolidated net cash from continuing operations for the six months ended June 30, 2014, totaled $25 million. Free cash flow used in continuing operations, which is defined as net cash provided by or used in continuing operations less capital expenditures, was $28 million for the six months ended June 30, 2014. On an adjusted basis, which excludes certain other items as outlined within the reconciliation tables below, Dean Foods generated $2 million in free cash flow through the first six months of 2014.
Total debt at June 30, 2014, net of $60 million cash on hand, was approximately $927 million. The Company's funded net debt to EBITDA ratio calculated in accordance with its credit agreements was 3.61 times as of the end of the second quarter of 2014.
Today the Company announced its intention to further amend its senior secured credit facility and receivables-backed facility to, among other things, modify the consolidated net leverage ratio covenant to increase the maximum permitted consolidated net leverage ratio as follows: 5.25x for each fiscal quarter ending on or prior to December 31, 2014; 5.00x for each fiscal quarter ending on or prior to March 31, 2015; 4.50x for each fiscal quarter ending on or prior to June 30, 2015; and 4.00x for each fiscal quarter ending thereafter. Pursuant to the proposed amendments, the Company will also be required to maintain a senior secured net leverage ratio not to exceed 2.50x. Loans outstanding under the senior secured credit facility will bear interest, at the Company's election, at either the Adjusted LIBO Rate (as defined in the credit agreement) plus a margin of between 1.25 percent and 2.75 percent, or the Alternate Base Rate (as defined in the credit agreement) plus a margin of between 0.25 percent and 1.75 percent, in each case based on our leverage ratio. Based on our current leverage ratio, interest rate margins for borrowings under the senior secured credit facility would increase from 2.25 percent to 2.50 percent in the case of Adjusted LIBO Rate loans, and from 1.25 percent to 1.50 percent in the case of Alternate Base Rate loans. In addition, advances outstanding under our receivables securitization facility will bear interest between 0.35 percent and 0.50 percent based on our leverage ratio, and that we will pay a facility fee between 0.45 percent and 0.60 percent based on our leverage ratio. Based on our current leverage ratio, interest rates for borrowings under the receivables securitization facility would increase from 0.35 percent to 0.45 percent, and the facility fee would increase from 0.45 percent to 0.55 percent. We expect these amendments to be entered into later this month, and we would pay customary consent fees and arrangement fees in connection with the amendments. Effectiveness of the amendments is conditioned on board approval, as well as other customary closing conditions.
"The balance of the year appears rocky, with a continued unpredictable and volatile dairy commodity environment. That makes it difficult to provide guidance beyond the immediate quarter," stated Tanner.
"Therefore for the time being, we are going to provide specific guidance only for the next quarter, where our visibility is better. In this case, we expect an adjusted diluted net loss of between $0.05 and $0.15 per share in the third quarter. While we hope to see a more positive environment later in the year, the uncertainty surrounding whether or when that will occur leads us to withdraw our full year guidance for the present time."
"We also expect to be at the low end of our prior 2014 capital expenditure guidance of $150-175 million."