Dean Foods

Second Quarter 2014

Earnings Report
August 11, 2014

Some of the statements made in this presentation are forward-looking and are made pursuant to the safe harbor provision
of the Private Securities Litigation Reform Act of 1995 including statements relating to: (1) projected sales (including specific
product lines and the company as a whole), profit margins, net income, earnings per share, free cash flow and debt covenant
compliance, (2) our regional and national branding initiatives, (3) our innovation, and research and development plans or our
ability to successfully launch new products, (4) commodity prices and other inputs and our ability to forecast or predict
commodity prices, milk production and milk exports, (5) our cost-savings initiatives, including plant closures and route
reductions, and our ability to accelerate any such initiatives or to achieve expected savings, (6) our plans related to our
leverage, (7) our planned capital expenditures, (8) the status of our litigation matters, (9) the impact of divestitures including
the sale of Morningstar and tax payments related thereto and the divestiture and spin-off of our former subsidiary, The
WhiteWave Foods Company, (10) our dividend policy, and (11) possible repurchases of shares of our common stock. These
statements involve risks and uncertainties that may cause results to differ materially from those set forth in this presentation.
Financial projections are based on a number of assumptions. Actual results could be materially different than projected if
those assumptions are erroneous. The cost and supply of commodities and other raw materials are determined by market
forces over which we have limited or no control. Sales, operating income, net income, debt covenant compliance, financial
performance and adjusted earnings per share can vary based on a variety of economic, governmental and competitive factors,
which are identified in our filings with the Securities and Exchange Commission, including our most recent Forms 10-K and 10Q (which can be accessed on our website at www.deanfoods.com or on the website of the Securities and Exchange
Commission at www.sec.gov). Our ability to profit from our branding initiatives depends on a number of factors including
consumer acceptance of our products. The declaration and payment of cash dividends under our dividend policy remains at
the sole discretion of the Board of Directors or a committee thereof and will depend upon our financial results, cash
requirements, future prospects, restrictions in our credit agreement and debt covenant compliance, applicable law and other
factors that may be deemed relevant by the Board or such committee. All forward-looking statements in this presentation
speak only as of the date of this presentation. We expressly disclaim any obligation or undertaking to release publicly any
updates or revisions to any such statements to reflect any change in our expectations with regard thereto or any changes in
the events, conditions or circumstances on which any such statement is based. Certain non-GAAP financial measures
contained in this presentation, including adjusted diluted earnings per share, free cash flow, adjusted free cash flow, adjusted
EBITDA, consolidated adjusted operating income and consolidated adjusted net income, are from continuing operations and
have been adjusted to eliminate the net expense or net gain related to certain items identified in our earnings press release,
including the Morningstar divestiture and the spin-off of our former subsidiary, The WhiteWave Foods Company. A full
reconciliation of these measures calculated according to GAAP and on an adjusted basis is contained in such press release,
which is publicly available on our website at www.deanfoods.com.
2

Tim Smith, SVP Investor Relations and Treasurer

Gregg Tanner, Chief Executive Officer

Chris Bellairs, Chief Financial Officer

Challenging quarter
Adjusted Operating Loss of $6 million; $71 million decline vs. prior year
Adjusted Diluted EPS of ($0.14) vs. prior years $0.26
Key challenges in quarter
Fluid milk category softness accelerated in Q2
Raw milk costs continue to remain at or near all-time highs
Butterfat prices rose 32% year over year, pressuring Class II product
margins (i.e., ice cream)
Continued transitory costs across conversion and distribution
exacerbated by fluid category softness
(in millions, except per share data and
leverage ratio)

Q2 14

Q2 13

Q2 YoY

Adj. Operating Income*

($6)

$65

($71)

Adj. Net Income*

($13)

$24

($37)

Adj. Diluted EPS*

($0.14)

$0.26

($0.40)

Adj. FCF*

($9)

$49

($58)

Net Debt to EBITDA*

3.61x

* See Reconciliation of Non-GAAP Financial Measures in the press release earnings tables for computation

(millions of gallons)

YoY Volume
Growth
Q3 2013: -8%
Q4 2013: -8%
Q1 2014: -6%

762

748

749

-4%

760
727
703

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Note: Excludes WhiteWave and Morningstar for all periods

Q1 2013

Q2 2013

685

Q3 2013

699

Q4 2013

685

674

Q1 2014

Q2 2014

Dean Foods Share

4% fluid milk volume decline year42.0%
over year
Approximately 80% of the
RFP-driven store transitions
occurred in Q2 2013

Dean Fluid Milk Share

40.0%

3.0%
38.1%

38.3%

38.3%

38.3%

38.0%

37.8%

2.0%
36.4%

36.0%

Year over year weakness in the

Large Format channel partially
offset by strength in the Small
Format channel

35.8%

35.7%

35.9%

34.9%

34.0%

32.0%

1.0%
0.0%

-1.4%
-1.9%

30.0%

-1.5%
-2.5%

-1.9%

-1.9%

-2.1%

-1.0%

-1.5%

-2.0%

-3.3%

Experienced sequential weakness

across all channels except food 28.0%
service

Deans share of Branded White

Milk at retail increased 60 basis
points versus prior year [2]

4.0%

USDA Fluid Milk Volume YoY

-4.0%

-3.0%

26.0%

-4.0%

24.0%

-5.0%

22.0%

-6.0%

Q1

Q2

Q3

Q4

2012

Q1

Q2

Q3

2013

Q4

Q1

Q2

[1]

2014

DF fluid milk volume down 0.3% excluding RFP and customer vertical integration
impact significantly better than 4.0% category decline
1
2

Q2-14 Share and Fluid Milk Volume YoY growth based on May QTD totals as reported by USDA
Source: IRI

TruMoo grocery channel performance in line with flavored milk category, which was
down 6%

Experienced 9% year over year growth and a 2% increase in share in convenience store
channel against a flat c-store flavored milk category

Reached an all-time high ACV eclipsing the 70% mark in Q2, which is 13 points better
than our branded white milk and approximately 8 points better than prior years ACV

Launching TruMoo Protein nationally in the second half of 2014

Margin over
Milk

Private Label Retail Price Less Class I Raw Milk Cost

Conventional White Milk Gallons

$1.80

Class I Raw Milk

Price per Gallon

$2.40
$1.75

As of Jun 29, 2014:

$1.39

$1.70
$1.65

Class I Raw
Milk Price

$2.20

$2.00

$1.60
$1.80
$1.55
$1.50

$1.60

$1.45
$1.40
$1.40
$1.20
$1.35
$1.30

$1.00

2011

Source: IRI, USDA. Class I mover converted at 11.6 gallons per cwt
Chart is a 90 day rolling average

2012

2013

2014

+25%
YoY

Class I Mover (per cwt)

January 2013 June 2014 (monthly)
$23.64

$18.97

Jan

$18.21

$17.80

$17.76

$18.93

$18.91 $18.88 $19.16

$19.20

$20.20

$20.37

Forecast
$23.65

$21.48 $22.02

~ $23.90

$24.47
$22.86

$23.02 $23.87

$17.66

Feb Mar Apr May Jun

July Aug Sept Oct

Nov Dec

Jan

Feb Mar Apr May Jun

July Aug Sept

Forecast

Quarterly Average 2011-2014

$23.66

~$23.60

2Q14

3Q14

$22.38

+24%
YoY

$21.41
$20.32

$19.83
$18.83

$18.33
$17.38

$16.44

$18.98

$19.92

$18.12

$16.55
$15.58

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

Bangor, ME
Evart, MI
Mendon, MA

Dillon, CO
(closed 07/14)

Denver, CO

Riverside, CA
(closed 07/14)

Springfield, VA
Delta, CO
(closed 07/14)

Dallas West, TX
(closed 06/14)

Buena Park, CA

Waco, TX
Shreveport, LA

8 plants closed in 2013, with 4 additional closures completed in 2014

10

 $4 million increase in Q2 distribution

cost as reduction lagged behind
volume decline

Continue to drive productivity to help

offset inflation, volume deleverage
and increased miles driven
Completed third party freight RFP
& consolidation of providers
Centralized management and
execution of third party freight
through Lean TMS

Testing intermodal transportation

opportunities for ice cream and
cultured products
Developed and rolled out new KPI
scorecards

$9 million reduction in Q2 SG&A.

Excluding advertising and incentive
compensation, SG&A was $3MM
better than year ago levels

11

Adjusted Operating Income

Overview

($ Millions, except per gallon)

Q2 adjusted gross profit of

$400 million

74
65
42
10.2

9.2

6.1

Adjusted operating loss of $6

million

48

6.9

7
Per
gallon

(6)

1.0

-1.0

Q1

Q2

Q3

Q4

Q1

Q2

2014

2013
% PY

Increased fluid milk category

weakness, mix shifts, record
high raw milk prices, rising
butterfat costs, the impact of
RFP volume losses and the
associated transitory costs
are negatively impacting
results

-109%

12

8%
6%

Actual Recorded Growth

Rabobank Forecast by half

4%

2%
0%

-2%
-4%
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May (e)
Jul
Sep
Nov
Jan
Mar
May

Growth on same month of prior year

Milk production growth of Big 7 exporters combined

2008

2009

2010

2011

2012

2013

2014

2015

Source: Rabobank
Note: includes EU 27, USA, NZ, Australia, Brazil, Argentina, and Uruguay

EU, Brazil, and New Zealand experienced strong year over year growth in H1 2014 of 5%, 12% and
19%, respectively. Full year growth rates are forecasted to be 3%, 7%, and 8%, respectively.

Year over year growth in U.S. milk production is expected to be 2% in 2014. However, U.S. milk
production growth in H2 2014 is forecasted to accelerate to 3%.

Top 4 milk exporters (EU, U.S., Brazil, and New Zealand) expected to have 4% year over year growth in
2014

Source: National milk organizations, Rabobank forecasts, USDA

13

Feb 2014

August 2014

% Change

Skim Milk Powder

$2.15/lb

$1.48/lb

-31%

Whole Milk Powder

$2.27/lb

$1.24/lb

-46%

Cheddar Cheese

$2.24/lb

$1.70/lb

-24%

Butter

$2.15/lb

$1.27/lb

-41%

U.S. Dairy Prices

Feb 2014

July 2014

% Change

Non-Fat Dry Milk

$2.04/lb

$1.65/lb

-19%

Cheddar Cheese Blocks

$2.36/lb

$1.99/lb

-16%

Butter

$1.89/lb

$2.44/lb

+29%

International Prices

Source: Global Dairy Trade auction (http://www.globaldairytrade.info/en/) and CME

14

2006

2007

Volume growth on 12 months prior

2008

2009

2010

2011

% Growth on 12 months prior

2012

2013

2014

Q2

Q1

Q4

Q3

Q2e

Q1

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

Q2

25%
20%
15%
10%
5%
0%
-5%
-10%
-15%

yoy growth

2,500
2,000
1,500
1,000
500
0
-500
-1,000

Q1

Thousand Tonnes MEQ

Change in export volumes for Big 7 exporters

2015

Rabobank Forecast % growth in exportable surplus (by half)

Dairy Stocks Volume (MM lbs): Jun 2014 vs. PY

1,400
Jun-13

-87MM
1,200

Jun-14

1,000
800
600
400

-133MM

-1MM

Butter

Non Fat Dry Milk

200
0
Cheese

15

($ millions, except EPS)

Adjusted Gross Profit

Q2
2014

$ B/(W)
vs Q2 2013

$400

($75)

Logistics

293

(4)

SG&A

113

Total Adjusted Operating Costs*

406

Consolidated Adjusted
Operating Income*

(6)

(71)

Adjusted EBITDA*

34

(71)

Interest Expense

15

12

(8)

23

Taxes
Adjusted Diluted EPS

(38.0%)

($0.14)

* 2013 results are presented on a pro forma basis. See Reconciliation of Non-GAAP Financial Measures in the press release
earnings tables for computation

($0.40)

16

Overview
Q2 total net debt of $927
million

Dean Foods
Net Debt
($ Millions)
3,976
3,651

Includes Q2 impact of final

Morningstar divestiture tax
payment of $6 million and
$19 million TN Litigation
payment

2,298

Q2 net debt to EBITDA ratio

of 3.61x*

Total Net Debt/EBITDA Ratio

881

906

927

Q1

Q2

FY

FY

FY

FY

2010

2011

2012

2013

5.12x

4.62x

3.52x

* Net debt is total long term debt less all cash on hand. Calculated per Dean Foods credit agreements

2.21x

2014
2.75x

3.61x
17

($ millions)

Net Cash Provided by

Continuing Operations

Six months ended June 30,

2014

Six months ended June 30,

2014 (adjusted *)

$25

$25

Net Capital Expenditures

($54)

($54)

Free Cash Flow Provided

by (Used in) Continuing
Operations

($28)

$2

Invested capital across AR, Inv, and AP declined $70 million year over year despite a 31% rise in
Class I milk prices

Cash conversion cycle improves 4 days vs. prior year driven by DSO and DIO improvements

*See Reconciliation of Non-GAAP Financial Measures in the press release earnings tables for computation
18

Dean Foods

Q3 14 Adjusted Diluted
EPS

FY 14 Cap Ex

Approximately ($0.05) to ($0.15)

Approximately $150 million

19

 Quarter challenged by historically high raw milk costs, accelerated fluid milk category
weakness and butterfat price inflation pressuring Class II product margins
Expect continued challenges over the balance of 2014 as we work through the margin
pressures associated with record high raw milk costs and soft industry volumes
Remain confident we are building a foundation for success

Thank you for your continued interest and support

20

Dean Foods
Second Quarter 2014
Earnings Report
August 11, 2014

21