As V/T goes to press, Dean Foods and Suiza Foods are preparing to consummate their merger, creating the nation's largest dairy (see V/T, April). Dean Foods ended the 2001 calendar year on a high note, reporting a record fiscal 2002 second quarter. Dean's merger with Suiza positions the combined company, which is projecting $10 billion in annual revenues, as the nation's leading processor and distributor of fresh milk and other dairy products.
In its fiscal second quarter, Dean's sales increased 4.3% to a record $1.14 million. Diluted earnings per share before merger-related costs were a record $0.80 per share, compared with $0.66 per share in the second quarter of fiscal 2001.
Driven by a significant improvement in National Refrigerated Products Group results, second-quarter operating earnings before merger-related costs were $62.7 million compared with $56.7 million in the comparable prior-year period. The company incurred pretax costs of $3.7 million related to the Suiza merger. ($2.3 million after-tax, or $0.06 per share).
"We are extremely pleased with our second-quarter results, given the difficult economic environment," said Howard Dean, chairman and chief executive officer. "Our focus on improving profitability and our technology investments over the past two years is paying off."
The Dairy Group's second-quarter sales increased 6.1% to $864 million, as a result of higher ice cream volume resulting from its national alliance with Baskin-Robbins, and higher fluid milk sales revenue derived from the pass-through of higher raw milk costs. The Dairy Group is responsible for the popular "Milk Chug" line, featuring white and flavored milk beverages in plastic 16-fl.oz. widemouth bottles.
Operating earnings for the quarter were $41.3 million compared with $43.6 million in the same fiscal quarter last year. Raw milk costs increased 33% and butterfat costs increased 35% compared with the second quarter of fiscal 2001. While price increases were taken on milk and ice cream products, not all of the added costs could be recovered through price increases.
The Specialty Food Group's second quarter sales were $179.2 million, compared with $185.3 million last year. Operating earnings were $21.6 million compared with $20.4 million last year, as lower foodservice sales were offset by price increases as well as ongoing cost control initiatives.
The National Refrigerated Product Group's second-quarter sales increased approximately 4% to $101.4 million, reflecting increases in all major product lines. Operating earnings increased $10.7 million, to $11 million, reflecting lower new product launch costs, continued efficiency improvements in the plants processing extended shelf life products, and higher sales.
Corporate expenses were $11.2 million in the second quarter of fiscal 2002, compared with $7.6 million in the second quarter of fiscal 2001. The increase was due to additional expense for incentive compensation plans corresponding to improved earnings in fiscal 2002.
"We continue to expect the merger with Suiza Foods will close prior to the end of calendar 2001. The combined company will have the national scope and scale to better serve our customers and, as a result, create long-term value for the shareholders of the new Dean Foods Company," concluded Dean. The merged organization will be listed as DF on the New York Stock Exchange, and will be based in Dallas. Its fiscal year henceforth will end on December 31. Upon closing, legacy Dean shareholders will rceive $21 in cash and 0.429 shares of the new Dean Foods Co. for each share owned.
Dean Foods is one of the nation's leading dairy processors and distributors producing a full line of branded and private-label products, including fluid milk, ice cream and extended shelf life products, which are sold under the Dean's and other strong regional brand names. Dean Foods is an industry leader in other food products including pickles, powdered non-dairy coffee creamers, aseptically packaged foodservice products and refrigerated dips and salad dressings.