Fourth Quarter Pro Forma Diluted Earnings Per Share Up 14% to $0.56 2003 Pro Forma Diluted Earnings Per Share Grew 11% to $2.05 Dean Foods Reiterates 2004 Guidance of $2.28 - $2.34 Per Share
DALLAS, Feb 12, 2004 /PRNewswire-FirstCall via COMTEX/ -- Dean Foods Company (NYSE: DF) today announced that the company earned $0.54 per diluted share for the quarter ended December 31, 2003, compared with $0.42 per share in the fourth quarter of 2002. Net income for the fourth quarter totaled $86.5 million, compared with $63.1 million in the prior year fourth quarter.
Net sales for the fourth quarter totaled $2.5 billion, an increase of 12% over the fourth quarter of 2002, due primarily to higher raw material costs that are passed on to customers in the form of higher selling prices, increased volumes at White Wave and the acquisitions of Melody Farms and Kohler Mix Specialties.
On a pro forma basis (as defined below), diluted earnings per share for the fourth quarter totaled $0.56, an increase of 14% compared with pro forma earnings of $0.49 per share in last year's fourth quarter. Pro forma net income for the fourth quarter grew 19% to $89.9 million compared with pro forma net income of $75.5 million in the fourth quarter of 2002.
"I'm pleased with our results for the fourth quarter and 2003," said Gregg Engles, chairman and chief executive officer. "We delivered 14% pro forma earnings per share growth for the quarter and 11% growth for the full year. We strengthened and focused our business, better positioning ourselves for the future. I am proud of the commitment and teamwork our employees have demonstrated throughout the year and would like to thank them for all of their efforts."
Operating income in the fourth quarter totaled $183.7 million versus $172.2 million in the fourth quarter of 2002. Pro forma fourth quarter operating income totaled $189.2 million, an increase of 5% over pro forma operating income of $179.8 million in the fourth quarter of 2002. Pro forma 2003 operating income margins were 7.54%, down 49 basis points versus the fourth quarter of the prior year. The decline in consolidated margins was due primarily to higher raw milk costs, the decline in Morningstar/White Wave margins and the negative impact of the supermarket strikes in California. The company noted that the supermarket strikes impacted operating income by approximately $4 million during the quarter, in line with expectations.
Long-term debt at December 31, 2003 was approximately $2.8 billion, including $180.2 million due within one year that is reported as part of current liabilities. At the end of the year, approximately $778 million of the company's $2.8 billion bank facility was available for future borrowings.
Pursuant to the company's share repurchase authorization, during the fourth quarter the company repurchased 1.45 million shares of common stock during the quarter at an average price of $32.36 per share, for an aggregate purchase price of $47 million. Approximately $115 million remains available for spending under the share repurchase program.
OUTLOOK FOR 2004
"As we begin the new year, we remain committed to increasing shareholder value at Dean Foods," said Engles. "In 2004, we will continue to rationalize, streamline and coordinate our operations, particularly in manufacturing and distribution, with the goal of maximizing efficiency and driving branded growth. We will also continue our efforts to build our portfolio of branded products by leveraging the experience we have gained to date and focusing our resources on our biggest, most successful brands, including Silk and Horizon Organic, our brands focused on health and wellness.
"We continue to expect to deliver 2004 pro forma earnings per share between $2.28 to $2.34, assuming a constant share count. In the first quarter, we anticipate earnings in the range of $0.44 to $0.46 per share," said Engles.
On January 2, 2004, Dean Foods completed the acquisition of the 87% equity interest in Horizon Organic it did not already own. Horizon Organic markets the leading brand of certified organic milk in both the United States and the United Kingdom. Horizon Organic's product line in the United States includes organic milk and a full line of organic dairy products. In the U.K., the company markets organic milk, yogurt and butter under the Rachel's Organic brand.
Also in January, Dean Foods acquired Ross Swiss Dairies, based in Los Angeles, Calif. The company distributes, markets and sells dairy and other refrigerated products throughout southern California, Nevada and Arizona. Ross Swiss Dairies has annual revenues of approximately $120 million.
In late December 2003, the Dean Specialty Foods Group completed the acquisition of the Cremora brand from Eagle Family Foods, Inc. The Cremora brand has annual sales of $16 million and is the second largest retail brand of powdered non-dairy creamers in the United States.
In October 2003, Dean Foods completed the acquisition of Kohler Mix Specialties from Michael Foods. With annual sales of approximately $190 million, Kohler has three plants and processes ultra pasteurized creams, creamers and ice cream mixes.
The company also announced that Jim Greisinger, President of Dean Specialty Foods Group, retired effective February 1, 2004. "Following the merger between Dean Foods and Suiza Foods, Jim has provided invaluable leadership to the organization," said Engles. "We appreciate his many contributions and wish him the very best upon his retirement." Blake Anderson, formerly Senior Vice President of Marketing for Dean Specialty Foods Group, has been promoted to President of Dean Specialty Foods Group. Anderson joined Dean Foods in 2002 from New World Pasta where he was Vice President, Sales and Trade Marketing. Prior to that, Anderson was with Vlasic Foods International. Anderson began his career at Campbell Soup Company, where he held a number of sales and leadership positions over 22 years.
Dairy Group net sales for the fourth quarter rose 11% to $1.92 billion, from $1.72 billion in the fourth quarter of 2002. The sales increase was due primarily to higher raw milk costs that were passed along to customers in the form of increased selling prices. The fourth quarter average Class I mover, which is an indicator of the company's Class I raw milk prices, averaged $14.16 per hundred-weight in the fourth quarter of 2003, a 36% increase versus last year.
Dairy Group pro forma operating income in the fourth quarter improved 18% to $154 million, and pro forma operating margins improved 46 basis points to 8.03% of sales. Dairy Group operating improvements offset the negative margin impact from higher raw milk prices and the southern California grocery strikes.
Morningstar/White Wave net sales in the fourth quarter increased 20% to $351 million compared to 2002. The increase was driven by the pass through of higher raw milk and butterfat prices on Morningstar's private label products, the addition of Kohler Mix Specialties, strong sales and volume growth at White Wave, as well as lower couponing, slotting and market development spending, which under GAAP are recorded as reductions to sales. The increase was partially offset by the sale of Morningstar's frozen pre-whipped topping business in July 2003, the previously announced termination of the Nestle co-packing business at Morningstar and the impact of the southern California supermarket strikes.
Pro forma operating income in the fourth quarter for Morningstar/White Wave was $30.7 million, with pro forma operating margins of 8.77%, a decline of 414 basis points compared to the prior year fourth quarter, but a sequential 838 basis point improvement from the third quarter of 2003. Operating margins in the Morningstar/White Wave segment declined due primarily to higher raw milk and butterfat costs, the sale of the frozen pre-whipped topping business, the addition of the lower margin Kohler Mix Specialties business and an increase in the White Wave management incentive program accrual, which will terminate in March 2004.
Specialty Foods' net sales in the fourth quarter totaled $180 million, a 5% increase over the 2002 fourth quarter, driven primarily by strong volume growth in non-dairy powdered coffee creamer and pickle sales. Operating income was $25.4 million, an increase of 4%, and operating income margin declined slightly to 14.1%, due to higher slotting fees and increased raw material costs.
RESULTS FOR YEAR ENDED DECEMBER 31, 2003
For the year ended December 31, 2003, the company's net sales increased 2% to $9.2 billion, compared with $9.0 billion during 2002. Sales growth was due primarily to the acquisitions of Kohler Mix Specialties, Melody Farms and White Wave (acquired May 2002) and was offset by the previously announced termination of the Nestle co-packing business, and the sale of the frozen pre-whipped topping business in July.
Net income for 2003 totaled $355.7 million, compared with $175.4 million in 2002. Diluted earnings per share for the year ended December 31, 2003 totaled $2.27, compared with $1.21 in 2002.
Pro forma net income for the year (as defined below) totaled $320.9 million, an increase of 15% over $279.3 million last year. 2003 pro forma diluted earnings per share were $2.05, an increase of 11% compared with $1.84 in the prior year.
Operating income for the year ended December 31, 2003 totaled $766.0 million versus $662.6 million in 2002, an increase of 16%. Pro forma operating income for 2003 totaled $709.1 million, an increase of 4% over pro forma operating income of $681.7 million last year. Pro forma operating income margins for the year were 7.7%, an increase of 14 basis points versus the 2002 pro forma results.
COMPARISON OF PRO FORMA INFORMATION TO GAAP INFORMATION
The pro forma financial information contained in this press release eliminates non-recurring or one-time gains or losses, as well as plant closing costs, and is provided in order to allow investors to make meaningful comparisons of the company's operating performance between periods and to view the company's business from the same perspective as the company's management. A full reconciliation table between earnings per share for the three and twelve-month periods ended December 31, 2003 calculated according to Generally Accepted Accounting Principles (GAAP) and on a pro forma basis is attached.
Additionally, the company's pro forma earnings guidance for 2004 excludes any potential non-recurring or one-time gains and losses and plant closing charges.
For the fourth quarter of 2003, the pro forma results reported above differ from the company's results under GAAP by excluding the following:
-- $8.3 million charge ($5.2 million net of income tax) related
primarily to the closure of a Dairy Group plant in South Gate, Calif.
and the reorganization of Morningstar and the Dairy Group's Northeast
and Midwest regions.
-- $2.8 million non-recurring gain ($1.8 million net of income tax) due
to favorably resolved contingencies related to the sale of 11 plants
to National Dairy Holdings in 2001 and the sale of the frozen pre-
whipped topping business in July.
For the fourth quarter of 2002, the pro forma results reported above differ from the company's results under Generally Accepted Accounting Principles (GAAP) by excluding the following items:
-- Plant closing charges of $7.6 million ($4.7 million net of taxes)
related to closing a Dairy Group plant in Ohio, an ice cream
production line in Colorado and a regional administrative office in
-- $7.9 million net after-tax loss from discontinued operations related
to the sale of the Puerto Rico operations. The sale of the Puerto
Rico dairy operations was announced and completed in the fourth
quarter, reflecting Dean Foods' desire to more closely align assets
and management resources with the company's ongoing strategic
-- An income tax benefit of $6.6 million related to a favorable tax
settlement with the IRS.
-- A $10 million ($6.3 million net of taxes) charge to record the
company's share of operating losses generated by Consolidated
Container Corporation during the year. During the fourth quarter,
Consolidated Container, in which Dean Foods owns a minority interest,
restructured its credit facilities. As part of this restructuring,
Dean Foods replaced its previously established $10 million guarantee
with a $10 million cash investment in Consolidated Container. As a
result, Dean Foods recorded a portion of Consolidated Container's
2002 losses, equal to $10 million.
For the year ended December 31, 2003 the pro forma results reported above differ from the company's results reported under GAAP by excluding a non- recurring gain totaling $68.7 million ($42.1 million net of income tax) related to the sale of the company's frozen pre-whipped topping business and resolved contingencies related to the sale of 11 plants to National Dairy Holdings in 2001 as discussed above. Pro forma results also exclude charges of $11.8 million ($7.3 million net of income tax) related to reorganizations and plant closings.
For the year ended December 31, 2002 the pro forma results reported above differ from the company's 2002 results reported under GAAP by excluding the following items: charges of $19.1 million ($11.8 million net of tax) related to plant closings; a one-time total charge of $85.0 million, net of income tax, related to the write-down of certain trademarks and goodwill due to the implementation of Financial Accounting Standard (FAS) 142, "Goodwill and Other Intangible Assets"; a $10 million ($6.3 million net of taxes) loss related to the company's investment in Consolidated Container; an income tax benefit of $6.6 million related to a favorable tax settlement with the IRS; and a $7.4 million net after tax loss from discontinued operations related to the sale of Puerto Rico.
ABOUT DEAN FOODS
Dean Foods Company is one of the leading food and beverage companies in the United States. Its Dairy Group division is the largest processor and distributor of milk and other dairy products in the country, with an extensive refrigerated direct-store-delivery network. Through its White Wave and Horizon Organic subsidiaries, Dean Foods Company is also the nation's leading manufacturer of soymilk, organic milk and other organic foods. The company's Specialty Foods Group is a leading manufacturer of pickles and other specialty food products. Dean Foods Company and its subsidiaries operate over 120 plants in 36 U.S. states and Spain, and employ approximately 28,000 people.
Some of the statements in this press release are "forward-looking" and are made pursuant to the safe harbor provision of the Securities Litigation Reform Act of 1995. These "forward-looking" statements include statements relating to, among other things, the company's projected sales, operating income, marketing expenses, depreciation, amortization, interest expense, capital expenditures, taxes and earnings per share. These statements involve risks and uncertainties that may cause results to differ materially from the statements set forth in this press release. The company's ability to meet targeted financial and operating results during 2004, including targeted sales, operating income, marketing expenses, depreciation, amortization, interest expense, capital expenditures, taxes and earnings per share depends on a variety of economic, competitive and governmental factors, many of which are beyond the company's control and which are described in the company's filings with the Securities and Exchange Commission. The company's ability to profit from its branding initiatives depends on a number of factors including primarily consumer acceptance of the company's products. The forward-looking statements in this press release speak only as of the date of this release. The company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to such statements to reflect any change in its expectations with regard thereto or any changes in the events, conditions or circumstances on which any such statement is based.