Dean Says It’s Turning the Corner With Dairy Drain Set to End

(Bloomberg) -- Investors are forgiving Dean Foods Co. for a third straight earnings disappointment after the top U.S. dairy company said a cash burn is over as it adjusts to lower demand.

The Dallas-based company, which is the worst-performing stock among North American packaged food producers this year, said on Tuesday that while there's plenty of work left to do, it has “passed the inflection point” as actions taken over the past year take effect. Shares gained.

In a mixed bag of quarterly results and outlook, the company reported a wider-than-expected loss, missed on sales, reported free cash flow that was the worst in six years and reduced its outlook for capital expenditures. But it expects to generate cash in the second quarter and for the year, with results improving in each month of the first quarter. The company said it gained some “big” ice-cream sales wins in the quarter with restaurants.

Shares and bonds gained on Tuesday after tumbling since late February when the company announced a review under the burden of heavy debt and a consumer shift away from milk. As it continues to explore strategic alternatives, the company said it refinanced loans, giving it a lifeline to continue the turnaround.

“We are encouraged by the underlying trends that we are seeing in operations,” Chief Executive Officer Ralph Scozzafava said.

Dean's shares gained as much as 11 percent on Tuesday, the most among packaged food peers. The company is trading at about half its book value, while the peer group fetches an average of 3.1 times book.

Debt holders cheered the prospect of positive free cash flow for the year. The company's senior unsecured notes were among the top gainers in the U.S. high-yield market on Tuesday after the results. Dean's bonds due 2023 jumped beyond 7 cents on the dollar to around 58 after the earnings call, according to Trace bond trading data.

Dean has “ample liquidity to execute” on its plan which “we are embarking on right now,” Chief Financial Officer Jody Macedonio said on a call to discuss the results.

The company said it's not disclosing liquidity levels at this time.

To contact the reporters on this story: Lydia Mulvany in Chicago at lmulvany2@bloomberg.net;Katherine Doherty in New York at kdoherty23@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Patrick McKiernan

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