Dean Foods Company. Prudential Equity Group s 15 th Annual Back-To-School Consumer Conference

Transcription

1 Dean Foods Company Prudential Equity Group s 15 th Annual Back-To-School Consumer Conference September 7, 2006

2 Forward Looking Statements The following statements made in this presentation are forward looking and are made pursuant to the safe harbor provision of the Securities Litigation Reform Act of 1995: statements relating to (1) projected sales (including for individual segments, for specific product lines and for the company as a whole), profit margins, net income and earnings per share, (2) our growth strategy, (3) our branding initiatives (4) our integration plans, and (5) our cost-savings initiatives. 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. Sales, profit margins, net income and earnings per share can vary based on a variety of economic, governmental and competitive factors, all of which are identified in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10K (which can be accessed on our website at or the website of the Securities and Exchange Commission at The success of our branding initiatives will depend on a number of factors, including customer and consumer acceptance of both the products themselves and the prices that we intend to charge for those products. We have many competitors with greater resources than ours, and significant additional spending or innovations by our competitors could render our products less successful than we currently expect. 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.

3 Agenda Unique Beverage Platform Dean Dairy Group WhiteWave Foods Well Positioned for Sustained Growth

4 Dean has established a leading position in the dairy industry 10 $10 B+ 8 US Dairy Sales ($Billions) $2.1B $1.7B $1.4B $1.2B $0.7B Dean Foods HP Hood Kroger NDH Prairie Farms Foremost Source: Dairy100 (2004 sales, excluding cheese)

5 and is the only national dairy beverage company Leading portfolio of national and regional dairy brands in health and wellness beverage categories National manufacturing system with fullest set of capabilities and with market proximity as a strategic advantage Unparalleled refrigerated distribution network Deep customer relationships at local, regional and national levels across all channels Potential to innovate across the entire dairy category Experienced management team with deep company, dairy and beverage industry expertise

6 Strong branded position, complemented by private label National Brands Private Label 37% Branded Sales 63% Strong Regional Brands Dean Foods 2005 Sales Mix

7 supported by the country s only national manufacturing system

8 with flexible production capabilities Any consumer, any occasion Short Shelf Life days Extended Shelf Life days Aseptic 6-9 months

9 in more than just milk Ice Cream and Novelties Cottage Cheese Yogurts

10 in more than just milk Waters Sour Creams Juices Teas

11 ..delivered through the only national refrigerated distribution network DSD Warehouse 160,000 refrigerated locations served 6,500 DSD routes nationwide 2,600 tractors 4,400 straight trucks 5,300 refrigerated trailers Broad grocery and retail capability Extensive foodservice / QSR system Any customer, any channel

12 Resulting in superior EPS growth $2.25 $ E Adjusted EPS* $2.00 $1.75 $1.50 $1.25 $ CAGR = 17% $1.31 $1.48 $ YTD through 6/30 = 13% $1.00 $0.75 GAAP EPS from continuing operations $1.08 $1.53 $1.28 $1.67 $0.92 YTD 15% growth See reconciliation of these at *Adjusted to omit the net impact of facility closing costs and one time charges and discontinued operations.

13 and strong cash flow generation Cash Flow from Continuing Operations Capital Expenditures for Continuing Operations $385M $414M $542M $260M $301M $287M ~$250M $265M $114M YTD 6/ YTD 6/30

14 $40 $35 $30 $25 $20 $15 Focus on sustained shareholder value creation 10-year Total Return = 750% CAGR = 23% Acquired minority interest in Horizon Organic Acquired Southern Foods Acquired Dean Foods Acquired 100% of Horizon Organic TreeHouse Spin-off Began WhiteWave consolidation Announced sale of Iberian operations Added to S&P 500 Index $10 $5 IPO Acquired Morningstar Acquired White Wave $ YTD Source: Bloomberg as of 8/31/2006 Note: Share price appreciation reflects stock-split adjusted price.

15 2006 first half highlights Dairy Group Dairy Group milk volume growth of 2.8% Initiating a multiple-year productivity and capability-building program WhiteWave Foods Continued strong growth of the core brands Strengthening the foundation with investments in G&A infrastructure, and SAP Dean Foods Company Adjusted EPS growth of 13% Announced the sale of Iberian operations, sharpening focus on largest opportunities Strong cash flow, supporting share repurchase of $136 million through June 30,and debt paydown On Track for Another Strong Year

16 Agenda Unique Beverage Platform Dean Dairy Group WhiteWave Foods Well Positioned for Sustained Growth

17 Demonstrated ability to drive share 5% Dairy Group Fluid Milk versus USDA Total Consumption 4% 3% 2% 2.4% 2.7% 1.2% 4.1% 3.4% 1.4% 3.4% 2.1% 1% 0% -1% -0.8% -0.5% 0% 1.3% 0.9% 0% 1.6% 1.1% -2% -3% -2.9% -2.3% -4% Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Dean Milk and Cream Volume Growth USDA Fresh Milk Volume Growth

18 Dairy Group Overview ($ Millions) $6B+ in annual fresh milk sales plus: Ice Cream ESL & Creamers Yogurt & Cultured Juice, Water and Tea Ice Cream Mix Other 2005 Sales Mix

19 Entering the next phase of Dairy Group evolution Consolidation Transition Transformation fold US dairy revenue growth from 1994 to 2002 $100 million to $7.6 billion Expanded from 2 facilities to over 100 Developed only nationwide footprint in the industry Four times larger than nearest competitor Primary focus on rollup, limited change to local dairy operating model Shifting volume to more efficient facilities, elimination of excess capacity to reduce costs Demonstrated ability to drive market share Significant management focus on portfolio rationalization and WhiteWave consolidation Early steps towards developing the future Dairy Group operating model Evolve the Dairy Group operating model to maximize the benefits of its scale advantage Strengthen functional expertise to reduce costs and sustain year on year productivity Enhance selling capability Ensure pace of change does not inhibit business performance Opportunity to sustain strong operating profit growth

20 We are working today to take full advantage of our size Purchasing Use volume to achieve the lowest cost Standardize / centralize purchases wherever it makes sense Maximize efficiency G&A Infrastructure Keep activities local that need to be local Centralize activities that can be shared Lower overhead cost versus competition

21 Addressable spend base of ~$3B $1.9B $1.1B Other Ingredients / Commodities* Utilities MRO Packaging Logistics Direct Indirect Total Spend Mapped (2005) *Notes: Ingredients/ commodities does not include raw milk, cream or soybeans Source: Internal data, including Dairy Group, and WWF

22 Opportunity to realign G&A infrastructure 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Over $100 Million Other HR & Payroll Finance & Accounting Historically local and decentralized staffing Multiple systems, organizational structures Significant redundancy

23 Need to build functional expertise in manufacturing and selling Manufacturing Infrastructure Lowest cost facilities Producing the right products in the right facilities With the right capital investments Enable continuous improvement mindset Direct to Store Distribution Upgrade systems Maximize truck utilization Optimize route design Leverage network scale Build selling and merchandising capability

24 Significant manufacturing cost reduction opportunity Footprint Productivity Number of Facilities Facilities operations FTEs per gallons produced (MM) Average / 50 51/ / / / / 300 Over 300 South East South West Mid West North East Miles to nearest Dean Foods Facilities Further footprint/ optimization potential Significant opportunity for continuous improvement

25 Better leverage the only national refrigerated DSD system Build additional selling capability Increase sales per route/stop Offer customers complete dairy solution Innovate with branded/single serve offerings to improve drop size and margin Maximize route efficiency through technology-based tools Eliminate redundant or overlapping routes

26 Cumulative value creation opportunity is substantial Value Brand Building and Product Innovation DSD Network Optimization Manufacturing Continuous Improvement G&A Infrastructure Realignment Purchasing Optimization Time

27 Dairy industry evolution Traditional Dairy Fragmented industry Local companies/little scale Locally managed, lack of functional expertise Limited profitability and financial resources Infrequent innovation Limited marketing High private label penetration New Dairy Consolidated industry Single national player Dean Foods Growing profitability; resources to invest Investment in innovation and marketing Emergence of national brands Portfolio of strong regional brands Greater consumer focus on nutrition

28 Agenda Unique Beverage Platform Dean Dairy Group WhiteWave Foods Well Positioned for Sustained Growth

29 WhiteWave Foods: Strong brands with a history of robust growth % of 2005 WhiteWave Sales 6% 5-Yr CAGR of Key Brands = 28% 28% 23% 20% 15% Note: Assuming full ownership in all comparable periods.

30 Creation of WhiteWave Foods 1997 Purchased Morningstar 2002 Purchased WhiteWave 2004 Purchased Horizon Organic 2002 Entered licensing agreement with Land O Lakes 2005 Merged 3 legacy companies under WhiteWave name

31 Integration of 3 legacy companies Sustainable growth and superior returns 3 separate, legacy companies 3 faces to the customer 3 separate, under-leveraged supply chains Internal redundancy Limited process and systems infrastructure One company 1 organization 1 leadership team 1 sales face to the customer Supply chain integration in progress Process and systems build-out in progress One, unified company; best-in-class brands, talent and infrastructure Focused portfolio of premium brands 1 face to the customer Fully integrated supply chain Top-talent organization Best-in-class processes and systems Platform for further premium branded beverage growth Time

32 WhiteWave Foods leading brand portfolio Strategic Summary 2005 Sales: $337 million 2005 growth of 20% 2006 YTD* growth of 14% 74% market share** No. 1 soy beverage Compelling health benefits Significant growth opportunity Education Innovation Focus on driving trial and adoption in US Multiple opportunities for growth Product adjacencies International *Through June 30, 2006 for continuing products **Source: IRI, Spins, IRI Walmart panel data

33 Market studies indicate a $1B+ soymilk category by Soymilk Sales Estimates ($Billions) $1.4B $1.1B $1.2B Soyatech Cambridge Mintel

34 Rapid growth of the soymilk category should continue Penetration should increase Virtually all sales are to 11% of households These buyers represent 80% of category volume Another 30% of US households are interested in soymilk Frequency should increase Core soymilk households still consume 3X as much conventional milk as soymilk Represents significant opportunity to grow the category

35 WhiteWave Foods leading brand portfolio Strategic Summary 2005 Sales: $273 Million 2005 milk sales increase of 44% 2006 YTD* growth of 28% 46% market share** Invest to increase supply localize the supply chain and drive margin Realign pricing as supply increases for profitability and sustainable category growth Drive growth on core fluid milk by targeting interested organically inclined consumers *Through June 30, 2006 for continuing products **Source: IRI, Spins, IRI Walmart panel data

36 Organic milk category growth is accelerating 27% 31% 16% Estimated organic milk retail sales growth: grocery & natural channel (52 weeks ending July 30) Note: above represents grocery and natural food channel dollar sales, 52 weeks ending July 30; does not include Wal-Mart, Club or other channels Source: IRI, SPINS for , IRI for 2003

37 Rapid growth of the organic milk category should continue Penetration should increase Virtually all sales are to 3.3% of households, up 1.2 pts (150 index) versus Another 29% of US households are interested in organic milk 2. Frequency should increase 22% of consumers view organic as extremely or very important to healthy lifestyle 3. Represents significant opportunity to grow the category 1. IRI Household Panel. 2. Cambridge Group Demand Landscape March Natural Marketing Institute: Health and Wellness Trends Report 2006.

38 Supply regionality for Horizon Organic We have a locally aligned supply chain Designed to provide shortest time from farm to table This will increasingly become a strategic advantage 13% 18% 17% 11% 10% 9% 22%

39 We are investing to grow supply Adding new family farms to producer network is our first priority 342 currently, 240 in transition Horizon Organic Producer Education Program Assists farmers in transition to organic Transition takes time 12 months for cows, 36 months for land Pursuing strategic partnerships with innovative producers Selectively leveraging supply at company-owned farms 20% of current supply Expecting supply growth in excess of 20% for 2007

40 WhiteWave Foods leading brand portfolio 2006 YTD sales growth of 29% #1 UK organic milk brand #2 UK organic yogurt 2006 YTD sales growth of 8% 30% market share in retail (#2) #1 in foodservice (approx 80% share) 2006 YTD sales growth of 5% 20% market share Exclusive perpetual fluid dairy license

41 Agenda Unique Beverage Platform Dean Dairy Group WhiteWave Foods Well Positioned for Sustained Growth

42 Well positioned for long term growth Dairy Group entering next phase of long-term strategy Consistently growing market share Multi-year productivity and capability-building program to extend advantage and improve margins WhiteWave Foods executing for growth Driving strong growth of well-positioned brands in attractive categories Pushing efficiency through integration of businesses Focus on building an innovation center of excellence Intense focus on cash flow generation and sustained shareholder value creation

43 Dean Foods sustainable growth algorithm Dairy Group WhiteWave Foods Corporate Costs Mid-single digits (5-6%) Mid-teens (15-18%) Less than volume growth (2-3%) Operating Profits Leverage from share repurchase and/or debt paydown High-single digits (7-8%) +++ Earnings Per Share Growth* Double-digit EPS Growth *excludes any future restructuring or other one-time items

44 Well positioned for sustained double-digit EPS growth $ E Value $1.83 $1.15 $1.31 $

45 Dean Foods Company Prudential Equity Group s 15 th Annual Back-To-School Consumer Conference September 7, 2006

46 Reconciliation of Diluted to Adjusted EPS Three Months Ended Fiscal Year Ended December 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Diluted EPS from continuing operations (GAAP): $ 1.08 $ 1.53 $ 1.28 $ 1.67 $ 0.32 $ 0.47 $ 0.40 $ 0.48 $ 0.38 $ 0.53 Facility closing and reorganization costs Settlement of tax matter (0.04) Losses on investment in affiliate Gain on sale of frozen pre-whip topping business - (0.25) Gain on litigation settlement - - (0.02) Write-off of deferred financing costs Other non-recurring charges - (0.01) Diluted EPS from continuing operations (Adjusted) $ 1.15 $ 1.31 $ 1.48 $ 1.83 $ 0.36 $ 0.48 $ 0.47 $ 0.52 $ 0.40 $ 0.55