Dean Foods Company Consumer Analyst Group of New York Annual Conference February 21, 2007
Dean Foods CompanyConsumer Analyst Group
of New YorkAnnual Conference
February 21, 2007
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 www.deanfoods.com or the website of the Securities and Exchange Commission at www.sec.gov). 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.
AgendaGregg Engles
Joe Scalzo
Jack Callahan
Gregg Engles
The New Dean
WhiteWave
Dairy Group
Summary and Outlook
Dean Foods Is the Only National DairyBeverage Company
Leading portfolio of national and regional dairy brands in better-for-you 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
Ability to innovate across the entire dairy category
Experienced management team with deep company, dairy and CPG industry expertise
Strong RegionalBrands
Strong Branded PositionComplemented by Private Label…
National BrandsPrivateLabel
33% BrandedSales
67%
Dean Foods 2006Sales Mix
…With the Country’s OnlyNational Manufacturing System…
...Delivered Through the Most Extensive NationalRefrigerated Sales and Distribution Network
160,000 refrigerated locations served6,500 DSD routes nationwide2,600 tractors4,400 straight trucks5,300 refrigerated trailers
Broad grocery and retail capability, including natural foods channelExtensive foodservice / QSR system
Any customer, any channel
WarehouseDSD
WhiteWave Foods
Dean Foods: 2006 Scorecard
Dairy Group
Leverage: share repurchaseand/or debt paydown
Corporate Costs
Operating Profits
Earnings Per Share Growth*
Mid-single digits(5-6%)
Mid-teens (15-18%)
Less than volume growth (2-3%)
High-single digits(7-8%)
+++
Double-digit EPS Growth
*excludes restructuring and other one-time items
Long-term Algorithm 2006 Result
+6%
+21%
(2.4%)
+9%
+++
+16%
Historical EPS Growth
2002 - 2006CAGR = 17%
$1.15
$1.31
$1.48
$1.83
$2.12
2002 2003 2004 2005 2006GAAP EPSfrom continuing operations
$1.08 $1.53 $1.28 $1.67 $2.01
See reconciliation of these at www.deanfoods.com and in Appendix A of this presentation*Adjusted to omit the net impact of facility closing costs and one time charges and discontinued operations.
Adj
uste
d EP
S*
Consistent Operating Incomeand Stable Cash Flow Generation
Operating Income fromContinuing Operations*
Cash Flow fromContinuing Operations
* Excludes divestures and non-recurring items, See Appendix A for reconciliation
Capex: $260 $301 $287 $237FCF: $125 $113 $255 $323
GAAPOp. Inc.
$574 $536 $580 $651
($ millions)($ millions)
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Focus on Sustained ShareholderValue Creation
Acquired Morningstar
Acquired Dean Foods
AcquiredWhite Wave
Acquired 100% ofHorizon Organic
Began WhiteWaveconsolidation
TreeHouseSpin-off
Source: Bloomberg as of 2/16/2007Note: Share price appreciation reflects stock-split adjusted price.
Added toS&P 500 Index
Acquired Southern Foods
IPO
Acquired minority interest in
Horizon Organic
CAGR = 26%Announced sale of Iberian operations
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 YTD
Dean Foods Evolution
Shifting volume to more efficient facilities, elimination of excess capacity
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
75 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
Consolidation
1994 - 2001
Transition
2002 - 2006
Traditional Dairy
Fragmented industry
Local companies
Locally managed, lack of functional expertise
Limited profitability and financial resources
Infrequent innovation
Limited marketing
High private label penetration
New Dairy
Consolidated industrySingle national player –Dean Foods is the #1 health & wellness and #3 non-alcoholic beverage company in U.S.Growing profitability; resources to investInvestment in innovationand marketingEmergence of national brandsStrong regional brandsGreater consumer focus on nutrition
Dairy Category Still Has Tremendous Upside
Evolve the operating model to maximize the benefits of scale advantage
Strengthen functional expertise to:
– Sustain year on year productivity
– Enhance selling capability, brand building and innovation
Ensure pace of change does not inhibit business performance
Opportunity to sustain strong operating profit growth
The New Dean
2007 - 2010
Shifting volume to more efficient facilities, elimination of excess capacity
Demonstrated ability to drive market share
Significant management focus on portfolio rationalization and WhiteWave consolidation
Early steps towards developing the future operating model
75 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
Consolidation
1994 - 2001
Transition
2002 - 2006
Dean Foods Evolution
The New Dean FoodsThe New Dean Foods
Building the New Dairy Model
Stepped Up Brand Building
and Innovation
Strengthened Selling
Systems
Increased Productivity
Step-Up Brand
Building And
Innovation
Strengthen Selling
Systems
Increase Productivity
WhiteWave Foods
Three separate businesses– Overlapping organizations– Significant redundancy– Variety of systems
Complex and inefficient manufacturing and distribution
– Over 12 internal production sites
– 30+ co-packersLimited selling and marketing capability
Starting Point: 2004 Where We Are Today: 2007
Consolidated and integrated three businesses into one
– Single face to the customer
– Reduced redundancy– Leveraged scale
Implementing SAP for efficiency and business insightBuilding direct sales model, company-wide innovation center, and world-class marketing organization
Update From Joe Scalzo, CEO and President, WhiteWave Foods
Dairy Group
Highly decentralized– 57 Business Units– 139 P&L’s
Limited scale leverage– Some plant
rationalization– Cooperation on some
direct materialsSignificant redundancyMixed functional expertise
Starting Point: 2005 Where We Are Today: 2007
Moving forward on a multi-year productivity enhancement program– Purchasing– Administration– Manufacturing
Shifting operating model to balance national scale with local accountabilityLooking to build expertise in marketing and DSD over time
Update From Jack CallahanCFO, Dean Foods
AgendaGregg Engles
Joe Scalzo
Jack Callahan
Gregg Engles
The New Dean
WhiteWave
Dairy Group
Summary and Outlook
WhiteWave Foods: Overview
Strong portfolio of branded products Leading market shares in on-trend categories- Horizon: #1 organic milk (45% share)- Silk: #1 soy milk (75% share)
Significant recent investment in capabilities and infrastructure
2006 PerformanceSales: $1,278MOperating Income: $139M, +21%
Core Brands
Brand Mix
Transition to a Unified WhiteWave Business is Near Complete; Margin Expansion Along the Way
2004
Three separate,
legacy companies
2006 2008+
Transition to one
integrated business
2005
Sust
aina
ble
grow
than
d su
perio
r ret
urns
2007
The New WhiteWave:
Increase productivityStrengthen selling systemsStep-up brand building and innovation
~2008+Top-tier CPGperformance
Net sales:Op mgn (%): 8.4% 9.6% 10.9%
$1,042M $1,201M $1,278M2004 2005 2006
Stepped Up Brand Building
and Innovation
Strengthened Selling
Systems
Increased Productivity
Step-Up Brand
Building And
Innovation
Strengthen Selling
Systems
Increase Productivity
Building the New Dairy Model
Leveraged, integrated supply chainEfficient
ManufacturingOptimized
Distribution
FocusedProductPortfolio
2007 and
beyond
UnfocusedPortfolio
2,600 SKU’sManufactured
Under-leveragedManufacturing
12 CompanyOwned Plants and
30+ Co-packers
ComplexDistribution
65InventoryLocations
2004
Reduceproduct
movement, maximize
truck loads
Drive top products
(~700 SKUs)
In-house production(5 plants,
3 strategicco-packers)
2005 -2006
Increase Productivity: Supply Chain
Increase Productivity: Purchasing
2005 – 2006:– Organized a centralized procurement
organization– Leveraged combined spend of 3 legacy
WWF businesses
2007 and 2008:– Leverages common areas of spend
across Dean Foods– Standardizing specifications
Increase Productivity: SAP
2006: Significant portion of business migrated- 50% of products and customers- Two plants
2007: Migrate rest of business
2008 and beyond: - Leverage improved enterprise
planning, visibility and control- KPI-measured performance
improvement
Building the New Dairy Model
Stepped Up Brand Building
and Innovation
Strengthened Selling
Systems
Increased Productivity
Step-UpBrand
BuildingAnd
Innovation
Strengthen Selling
Systems
Increase Productivity
Strengthen Selling Systems
2005 – 2006: Transitioned to one sales organization primarily brokered through Acosta
2007 – 2008:–Transition to hybrid direct sales model with dedicated sales and distribution teams for key customers
– Leverage Dairy Group DSDSingle ServeAlternative Channels
Building the New Dairy Model
Stepped Up Brand Building
and Innovation
Strengthened Selling
Systems
Increased Productivity
Step-UpBrand
Building And
Innovation
Strengthen Selling
Systems
Increase Productivity
Step-Up Branding and Innovation
2005 – 2006: Improve marketing to drive continued core brand growth– Build the team with top CPG marketing talent– Consumer insight and ROI-driven programs
2007 – 2008: Invest to accelerate growth through innovation
– Focus on prospects– New products– New channels– New geographies
New ProductsValue-addedLine Extensions
Single ServeExpansion
Step-Up Branding and Innovation: 2007
Single ServeExpansion
Value-addedLine Extensions New Products
Strategic Summary
Core Brand Overview
• 2006 Brand Sales: ~$360MM
• 12% increase vs 2005
• 75% market share1
No. 1 soy beverage
Compelling health benefits
Significant growth potential by targeting consumer prospects:
– Only 11.5% HH penetration(up 1% point from year ago)2
– Soymilk households consume three times as much conventional milk as soymilk3
Driving cost from the supply chain through scale and efficiencies
Investing in innovation
1. IRI, Spins, IRI Wal-Mart panel data2. IRI Household Panel.3. Cambridge Group – Demand Landscape March 2006.
Strategic Summary
Strategic Summary
Core Brand Overview
• 2006 Brand Sales: ~$315MM
• 24% Milk Increase vs 2005
• 45% market share1
Continue to focus on supply growth
– 25%+ organic milk supply increase in 2007 (vs. year ago)2
Significant growth potential from penetrating consumer prospects
– ~4% household penetration vs. 33% of households interested in organic milk 3
Demand-driving initiativesunder way– New Products– Distribution– Single Serve
1. IRI, Spins, IRI Wal-Mart panel data2.Company estimates3.Cambridge Group – Demand Landscape March 2006.
Strategic Summary
Core Brand Overview
2006 sales growth of 7%30% market share in retail (#2)#1 in foodservice(approx 80% share)
2006 sales growth of 6%20% market share – all-time high (half and half creamer)Exclusive perpetual fluid dairy license
2006 sales growth of 27%#1 UK organic milk brand#2 UK organic yogurtIntroduce brand to U.S.
WhiteWave Summary
Transitioning to one integrated business; will be completed in 2007
Strong core brand growth
Steadily improving operating margins
On our way to the New WhiteWave
AgendaGregg Engles
Joe Scalzo
Jack Callahan
Gregg Engles
The New Dean
WhiteWave
Dairy Group
Summary and Outlook
#1 processor and distributor of milk and dairy products in the U.S.Leading portfolio of well-known regional brands, with private label offeringsBroad customer reach and strong relationshipsUnparalleled refrigerated U.S. distribution network
2006 PerformanceSales: $8,821MOperating Income: $678M, +6%
Dean Dairy Group: Overview
Representative Brands
Product Mix
Stepped Up Brand Building
and Innovation
Strengthened Selling
Systems
Increased Productivity
Step-UpBrand
Building And
Innovation
Strengthen Selling
Systems
Increase Productivity
Building the New Dairy Model
Significant Compressible Cost Opportunity
Traditional P&L View: Dairy Group
20%
80%
40%
60%
100%
COGS
0%
2006 Cost Base = $8.14 B Estimate
COGS
OperatingExpense
Significant Compressible Cost Opportunity
Alternative P&LView
20%
80%
40%
60%
100%
COGS
Milk/Cream
40%
0%
2006 Cost Base = $8.14 B Estimate
COGS
OperatingExpense
Traditional P&L View: Dairy Group
Significant Compressible Cost Opportunity
Alternative P&LView
20%
80%
40%
60%
100%
Direct Materials 20%
COGS
OperatingExpense
Milk/Cream
40%
0%
2006 Cost Base = $8.14 B
People Related22%
Capital 2%
Other 4%
Indirect Purchases12%
Compressible Costs ~$5B
Estimate
Traditional P&L View: Dairy Group
Purchasing: Starting Point
Category management
Majority of category spend unmanagedPrimarily price focused vs. total cost of ownership/system cost emphasis
Compliance
Limited plant compliance with local buying Limited ability to track performance metrics
Organization
Understaffed organizationBuyer roles combined strategic sourcing with execution
Purchasing: The Opportunity
Ingredients / Commodities*
Packaging
Other
Utilities
MRO
Logistics
Direct Materials Indirect Purchases$1.1B$1.9B
Other
*Notes: Ingredients/ commodities does not include raw milk, cream or soybeans: 2005 cost base Source: Internal data, including Dairy Group, and WWF
Includes both Dean Dairy Group & WhiteWave
Purchasing: Where We Are Today
Foundational Work Complete in 2006
Category management
Detailed understanding of total spendLeverage competitive bidding to drive resultsSet high expectations of our suppliers
Compliance
Measure performance against expectationsEnsure compliance
Organization
New experienced leadership in placeEstablishing a disciplined sourcing process
Purchasing: Prioritized Into Multiple Waves
Low
Low
High
$ I
mp
act
Ease of implementationHigh
Delivering Net Benefits in 2007 - Several Years of Benefits Expected
Wave IIWave III Wave I2007- 20082008- 2009+
Administration: Starting Point
Historically local and decentralized staffingMultiple systems and organization structuresAccounting, payroll, and accounts payable at over 60 locationsOpportunity to: – Keep activities local
that need to be local– Centralize activities
that can be shared
Finance &
Accounting
HR & Payroll
Other
>2,000 people and $110 million
CurrentFocus ofinitiatives
Finance: A More Specialized, Capable Function
Shared ServicesControl & ReportingFinancial Planning and Analysis
Actual Result Orientation
Key Focus:Financial statement consistency, integrity & reportingTransitioning into three primary locations
Forward Looking Orientation
Key Focus:Influencing decision making and bottom line performanceAligned with field management structure
Efficient TransactionProcessing
Key Focus:Consistent and high quality service for our partners and employeesCreated Dean Financial Services in Dallas
Requires An Investment in 2007
Manufacturing: Continue to Drive Costs Lower
Continue optimization of the manufacturing footprintDeveloping common metrics in cooperation with the realigned Finance OrganizationImprove underperforming operations
Best practicesContinuous improvementprograms
Continued Focus
Longer-Term Development
Building the New Dairy Model
Stepped Up Brand Building
and Innovation
Strengthened Selling
Systems
Increased Productivity
Step-UpBrand
Building And
Innovation
Strengthen Selling
Systems
Increase Productivity
Working Toward a Transition from a Geographic Focus to a System Focus
Refrigerated Frozen
Selling System
Primary Product
Line
Shelf Life
Estimated Sales Mix(% of total)
DSD
Milk, Cream, Juice,
Drinks, Water
2-3 weeks
75%
Warehouse
ESL Cream, Yogurt, Cottage Cheese, Sour
Cream, Ice Cream Mix
2-3 months
15%
DSD & Warehouse
Ice Cream, Novelties
9-12 months
10%
Selling Systems: Uniquely Positioned to Leverage Size and Scale
Leveraging DSD, warehouse and frozen distribution to offer full category management
Flexibility to meet the diverse needs of national, regional and local retail and foodservice customersPrivate label offering builds close working relationships with key customers, in addition to scale leverageInvesting in technology to further improve customer services, eg: ASN, UCCNet
Brand Building: Regional Dairy Brands
Investing to strengthen Marketing leadership and capability
Alan Bernon
Harrald KroekerDairy DSD
John RobinsonMorningstar/ Warehouse
Extensive Dairy, Beverage and Functional Expertise
TBDIce Cream / Frozen
Functional Staff
Business Unit
LeadershipDairy: 25 yrsDean: 8 yrs
Dairy: 31 yrsDean: 10 yrs
CPG: 26 yrsPBG: 20 yrs
Years Of Experience•Dairy 98 •Dean 44•Beverage 22•HR 22•Finance 25•Purchasing 30
Dairy Group 2007 Algorithm
$678 M
$642 M
$597 M
Volume/ Mix
+2%Productivity
+2%+2% -1%
PurchasingInvestments
2004 2005 2006 2007 E
2 Year CAGR = 6.6%
~ +5%
AgendaGregg Engles
Joe Scalzo
Jack Callahan
Gregg Engles
The New Dean
WhiteWave
Dairy Group
Summary and Outlook
The New Dean FoodsThe New Dean Foods
Building the New Dairy Model
Stepped Up Brand Building
and Innovation
Strengthened Selling
Systems
Increased Productivity
Step-UpBrand
Building And
Innovation
Strengthen Selling
Systems
Increase Productivity
WhiteWave Foods
Dean Foods Sustainable Growth Algorithm
Dairy Group
Leverage from share repurchase and/or debt paydown
Corporate Costs
Operating Profits
Earnings Per Share Growth*
Mid-single digits(5-6%)
Mid-teens (15-18%)
Less than volume growth (2-3%)
High-single digits(7-8%)
+++
Double-digit EPS Growth
*excludes any future restructuring or other one-time items
2007 Outlook
Operating profit: ~7% growth
EPS: $2.33 - $2.3810% - 12% growth
Capital Expenditures: ~$250 M
Q1 EPS Expectations:$0.44 - $0.4610% – 15% growth
Dean Foods CompanyConsumer Analyst Group
of New YorkAnnual Conference
February 21, 2007
Appendix A: Reconciliation
DEAN FOODS COMPANY
Reconciliation of Operating Income and Diluted EPS from Continuing Operations to Adjusted Results(Dollars in thousands, except per share data)
(Unaudited)
2002 2003 2004 2005 2006 Operating Income (GAAP): 475,906$ 573,683$ 535,745$ 580,095$ 650,695$ Facility closing and reorganization costs 19,050 11,787 24,575 35,451 25,116 Other operating (income) expense - (68,719) (5,899) 3,148 -
Operating Income (Adjusted): 494,957$ 516,751$ 554,420$ 618,694$ 675,811$
Diluted EPS from continuing operations (GAAP): 1.08$ 1.53$ 1.28$ 1.67$ 2.01$ Facility closing and reorganization costs 0.07 0.04 0.09 0.15 0.11 Settlement of tax matter (0.04) - - - - Losses on investment in affiliate 0.04 - - - - Gain on sale of frozen pre-whip topping business - (0.25) - - - Gain on litigation settlement - - (0.02) - - Write-off of deferred financing costs - - 0.13 - - Other non-recurring charges - (0.01) - 0.01 -
Diluted EPS from continuing operations (Adjusted) 1.15$ 1.31$ 1.48$ 1.83$ 2.12$
Fiscal Year Ended December 31,