Dean Foods axes profit guidance, rejigs debt terms

Dean Foods revealed it was withdrawing its full-year profit forecast, and planning to ease restrictions on credit terms, warning of a "rocky" outlook, thanks to "unpredictable and volatile" dairy commodity markets.

The group, the top US milk processor, forecast a loss of $0.05-0.15 per share for the July-to-September quarter, but ditched expectations of a result for the full 2014 downgraded three months ago to "at least $0.60" per share.

"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," Gregg Tanner, the Dean Foods chief executive, said.

"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."

Analysts had forecast earnings per share of $0.24 for the current quarter, and of $0.54 for the whole of 2014.

Dean Foods shares tumbled 10.2% to a five-month low of $14.19 in opening deals in New York, before recovering some ground to stand at $14.875 45 minutes into the trading day, a loss of 6.1%.

Debt revamp

The group said that it was also intending to "further" amend limits on its senior secured credit facility, backed by receivables, to allow it a greater elbow room before being deemed in breach of penalty covenants.

The group's leverage ceiling - in terms of the ratio of net debt to earnings before interest, tax, depreciation and amortisation (ebitda) will be raised to 5.25 for the rest of 2014, falling back in steps to 4.00 times from the third quarter of next year.

"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," said the group - which last month saw its credit rating raised by Standard & Poor's by one notch to BB-.

Dean Foods' net debt rose by $21m over the three months to the end of June, raising the net debt: ebitda ratio from 2.75 times to 3.61 times, given also a deteriorating financial performance.

'Most difficult in history'

Indeed, the company reported a loss of $12.73m for the April-to-June quarter, compared with earnings of $24.20m in the same period last year.

While revenues rose 7.5% to $2.39bn, this reflected raised milk prices, of which Dean Foods was unable to pass on to customers only part of its own increased costs.

Indeed, US retail margins for private label milk had fallen below $1.40 a gallon in the latest quarter, from levels of about $1.60 a gallon a year before.

"The second quarter was even more challenging than we had originally anticipated," Mr Tanner said, adding that "this is by far the most difficult operating environment in the history of the company".

The price of Class 1 Mover milk, the company's benchmark, stood at $23.66 per hundredweight in the latest quarter, up 31% year on year, and 6% quarter on quarter.

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