Company Reports Second Quarter Diluted EPS of $0.47;
Unprecedented Rise in Raw Material Costs Impacts Second Quarter Earnings; Dean Foods Reiterates 8-10% Adjusted Diluted EPS Growth Expectations for 2004
DALLAS, Aug. 4 /PRNewswire-FirstCall/ -- Dean Foods Company (NYSE: DF) announced today that it earned $0.47 per diluted share for the quarter ended June 30, 2004, a decline of 13% compared with $0.54 per diluted share in the second quarter of 2003. Net income in the second quarter declined 8% to $77.1 million, compared with $83.8 million in the second quarter of 2003.
Net sales for the second quarter totaled $2.8 billion, an increase of 26% over the second quarter of 2003, due to increased selling prices resulting from the pass through of increases in raw milk costs. The Class I mover, which is an indicator of the price the company pays for raw milk, increased 87% in the second quarter compared with last year's second quarter, and Class II butterfat prices increased 105% in the same period. Solid growth in the Branded Products Group segment and the acquisitions of Horizon Organic and Ross-Swiss Dairies in 2004 and Kohler Mix Specialties in 2003 also contributed to revenue growth.
On an adjusted basis (as defined below), diluted earnings per share for the second quarter declined 16%, and net income for the second quarter was down 10%.
"As we expected, this year's second quarter was a difficult one for Dean Foods," said Gregg Engles, chairman and chief executive officer. "During the quarter, dairy commodities rose to historic highs, as did many other agricultural inputs and energy prices. We did a reasonably good job of passing these cost increases along, particularly in our dairy business. Nonetheless, our adjusted net income was down 10% to last year and at the low end of our expectations. Increased spending against our brands also impacted our results compared to last year.
"The Dairy Group turned in a respectable performance given the commodity environment. Our Branded Products Group continued to deliver solid volume, sales and profitability growth, even while increasing investment in marketing and promoting our brands. Our Specialty Foods Group continues to face significant cost pressure and competitive challenges this year. We expect these operational and competitive challenges will continue for the Specialty Foods Group through the second half of the year," Engles said.
Operating income in the second quarter totaled $169.0 million, an 8% decline versus $184.5 million in the second quarter of 2003. Adjusted second quarter operating income of $169.0 million declined 10% compared to adjusted operating income of $187.5 million in the second quarter of 2003.
Operating income margins were 6.02% for the second quarter of 2004, down 228 basis points compared to 8.30% in the second quarter of 2003. On an adjusted basis, operating income margins were down 242 basis points compared to 8.44% in the second quarter of 2003.
The decline in consolidated operating income and margins was due to higher raw milk, butterfat, fuel and other commodity costs, as well as increased brand spending compared to the prior year.
Long-term debt at June 30, 2004 was approximately $3.1 billion, including $300 million due within one year that is reported as a current liability. At the end of the quarter, approximately $711 million was available for future borrowings under the company's senior credit facilities.