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
"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%.
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
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.