df 09/21/06

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df 09/21/06

  1. 1. Dean Foods Company Prudential Equity Group’s 15th Annual Back-To-School Consumer Conference September 7, 2006
  2. 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 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.
  3. 3. Agenda Unique Beverage Platform Dean Dairy Group WhiteWave Foods Well Positioned for Sustained Growth
  4. 4. Dean has established a leading position in the dairy industry… $10 B+ 10 8 US 6 Dairy Sales 4 ($Billions) $2.1B $1.7B 2 $1.4B $1.2B $0.7B 0 HP Dean Kroger NDH Prairie Foremost Hood Foods Farms Source: Dairy100 (2004 sales, excluding cheese)
  5. 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. 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. 7. … supported by the country’s only national manufacturing system…
  8. 8. … with flexible production capabilities… Any consumer, any occasion Short Shelf Life Extended Shelf Life Aseptic 16-18 days 45-60 days 6-9 months
  9. 9. …in more than just milk… Ice Cream and Novelties Cottage Cheese Yogurts
  10. 10. …in more than just milk… Waters Sour Creams Juices Teas
  11. 11. ..delivered through the only national refrigerated distribution network DSD Warehouse 160,000 refrigerated locations Broad grocery and retail served capability 6,500 DSD routes nationwide Extensive foodservice / QSR system 2,600 tractors 4,400 straight trucks 5,300 refrigerated trailers Any customer, any channel
  12. 12. Resulting in superior EPS growth $2.10 - 2.15 E $2.25 $2.00 2006 2002-2005 $1.83 YTD Adjusted EPS* CAGR = 17% $1.75 through 6/30 = 13% $1.48 $1.50 $1.31 $1.25 $1.15 $1.00 $0.75 2002 2003 2004 2005 2006 GAAP EPS $1.08 $1.53 $1.28 $1.67 $0.92 YTD from continuing 15% growth operations See reconciliation of these at www.deanfoods.com *Adjusted to omit the net impact of facility closing costs and one time charges and discontinued operations.
  13. 13. …and strong cash flow generation Cash Flow from Capital Expenditures for Continuing Operations Continuing Operations $542M $301M $287M $260M ~$250M $414M $385M $265M $114M 2003 2004 2005 2006 2003 2004 2005 2006 YTD YTD 6/30 6/30
  14. 14. Focus on sustained shareholder value creation Announced sale of Iberian operations TreeHouse $40 Spin-off 10-year Total Return = 750% Acquired 100% of $35 CAGR = 23% Horizon Organic $30 Added to Acquired Acquired minority S&P 500 Index Dean Foods $25 interest in Horizon Organic Began WhiteWave $20 consolidation Acquired Southern Foods $15 Acquired IPO $10 White Wave Acquired Morningstar $5 $0 1996 1997 2000 2003 2006 YTD 1999 2002 2005 1998 2001 2004 Source: Bloomberg as of 8/31/2006 Note: Share price appreciation reflects stock-split adjusted price.
  15. 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. 16. Agenda Unique Beverage Platform Dean Dairy Group WhiteWave Foods Well Positioned for Sustained Growth
  17. 17. Demonstrated ability to drive share Dairy Group Fluid Milk versus USDA Total Consumption 5% 4% 3.4% 3.4% 4.1% 2.7% 3% 2.4% 2.1% 1.4% 2% 1.2% 1% 1.6% 1.1% 1.3% 0.9% 0% -0.8% 0% 0% - 0.5% -1% -2% - 2.9% -2.3% -3% -4% Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Dean Milk and Cream USDA Fresh Milk Volume Growth Volume Growth
  18. 18. Dairy Group Overview $6B+ in annual fresh milk sales plus: ($ Millions) 800 600 400 200 0 Ice ESL & Yogurt & Juice, Ice Cream Other Cream Creamers Cultured Water Mix and Tea 2005 Sales Mix
  19. 19. Entering the next phase of Dairy Group evolution Transition Transformation Consolidation 1994 - 2001 2002 - 2006 2007 - 2010 75 fold US dairy revenue Shifting volume to more Evolve the Dairy Group growth from 1994 to efficient facilities, operating model to 2002 elimination of excess maximize the benefits of capacity to reduce costs its scale advantage – $100 million to $7.6 billion Demonstrated ability to Strengthen functional drive market share expertise to reduce costs Expanded from 2 and sustain year on year facilities to over 100 Significant management productivity focus on portfolio Developed only rationalization and Enhance selling nationwide footprint in WhiteWave consolidation capability the industry Early steps towards Ensure pace of change Four times larger than developing the future does not inhibit business nearest competitor Dairy Group operating performance Primary focus on rollup, model Opportunity to sustain limited change to local strong operating profit dairy operating model growth
  20. 20. We are working today to take full advantage of our size Purchasing G&A Infrastructure Use volume to achieve the Keep activities local that lowest cost need to be local Standardize / centralize Centralize activities that purchases wherever it can be shared makes sense Lower overhead cost Maximize efficiency versus competition
  21. 21. Addressable spend base of ~$3B $1.1B $1.9B 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. 22. Opportunity to realign G&A infrastructure Over $100 Million 100% 90% Historically local and 80% Other decentralized staffing 70% Multiple systems, 60% HR & Payroll organizational structures 50% 40% Significant redundancy Finance 30% & Accounting 20% 10% 0%
  23. 23. Need to build functional expertise in manufacturing and selling Manufacturing Direct to Store Infrastructure Distribution Lowest cost facilities Upgrade systems Producing the right Maximize truck utilization products in the right Optimize route design facilities Leverage network scale With the right capital Build selling and investments merchandising capability Enable continuous improvement mindset
  24. 24. Significant manufacturing cost reduction opportunity Footprint Productivity Facilities operations FTEs per gallons produced (MM) 39 1.8 1.6 Average 1.5 Number of Facilities 1.4 23 1.2 16 10 7 4 2 0/ 51/ 101/ 151/ 201/ 251/ Over South South Mid North 50 100 150 200 250 300 300 East West West East Miles to nearest Dean Foods Facilities Further footprint/ Significant opportunity for optimization potential continuous improvement
  25. 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. 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 2010 2009 2008 2007
  27. 27. Dairy industry evolution Traditional New Dairy Dairy Consolidated industry Fragmented industry Single national player Local companies/little – Dean Foods scale Growing profitability; Locally managed, resources to invest lack of functional Investment in expertise innovation and marketing Limited profitability Emergence of national and financial brands resources Portfolio of strong Infrequent innovation regional brands Limited marketing Greater consumer focus on nutrition High private label penetration
  28. 28. Agenda Unique Beverage Platform Dean Dairy Group WhiteWave Foods Well Positioned for Sustained Growth
  29. 29. WhiteWave Foods: Strong brands with a history of robust growth % of 2005 WhiteWave Sales 6% 5-Yr CAGR of 28% Key Brands = 28% 23% 20% 15% 2000 2001 2002 2003 2004 2005 Note: Assuming full ownership in all comparable periods.
  30. 30. Creation of WhiteWave Foods 1997 2004 Purchased Purchased Morningstar Horizon 2002 Organic Purchased WhiteWave 2005 Merged 3 legacy companies under WhiteWave name 2002 Entered licensing agreement with Land O’ Lakes
  31. 31. Integration of 3 legacy companies Sustainable growth and superior returns One, unified company; best-in-class brands, talent and One company 3 separate, infrastructure legacy companies – 1 organization – Focused portfolio of – 1 leadership team premium brands – 1 “sales” face to – 3 faces to the – 1 face to the the customer customer customer – Supply chain – 3 separate, integration in – Fully integrated under-leveraged progress supply chain supply chains – Process and – Top-talent – Internal redundancy systems build-out in organization – Limited process progress – Best-in-class and systems processes and infrastructure systems Time 2004 2005-2006 2007-2008 Platform for further premium branded beverage growth
  32. 32. WhiteWave Foods’ leading brand portfolio Strategic Summary No. 1 soy beverage Compelling health benefits 2005 Sales: $337 million Significant growth opportunity – Education 2005 growth of 20% – Innovation 2006 YTD* growth of 14% Focus on driving trial and adoption in US 74% market share** Multiple opportunities for growth – Product adjacencies – International *Through June 30, 2006 for continuing products **Source: IRI, Spins, IRI Walmart panel data
  33. 33. Market studies indicate a $1B+ soymilk category by 2008 $1.4B 2008 Soymilk Sales Estimates ($Billions) $1.2B $1.1B Soyatech Cambridge Mintel
  34. 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. 35. WhiteWave Foods’ leading brand portfolio Strategic Summary Invest to increase supply localize the supply chain and drive margin 2005 Sales: $273 Million Realign pricing as supply 2005 milk sales increase increases for profitability and sustainable category of 44% growth 2006 YTD* growth of 28% Drive growth on core fluid milk by targeting 46% market share** interested organically inclined consumers *Through June 30, 2006 for continuing products **Source: IRI, Spins, IRI Walmart panel data
  36. 36. Organic milk category growth is accelerating 31% 27% 16% 2004 2005 2006 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 2004-2006, IRI for 2003
  37. 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 20031. – Another 29% of US households are interested in organic milk2. Frequency should increase – 22% of consumers view organic as “extremely” or “very important” to healthy lifestyle3. Represents significant opportunity to grow the category 1. IRI Household Panel. 2. Cambridge Group – Demand Landscape March 2006. 3. Natural Marketing Institute: Health and Wellness Trends Report 2006.
  38. 38. Supply regionality for Horizon Organic We have a locally aligned supply chain Designed to provide shortest time from farm 9% to table 13% 17% This will increasingly 22% 10% become a strategic 18% advantage 11%
  39. 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 Expecting supply growth months for cows, 36 months for land in excess of 20% for 2007 Pursuing strategic partnerships with innovative producers Selectively leveraging supply at company-owned farms – 20% of current supply
  40. 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. 41. Agenda Unique Beverage Platform Dean Dairy Group WhiteWave Foods Well Positioned for Sustained Growth
  42. 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. 43. Dean Foods sustainable growth algorithm Mid-single digits Dairy Group (5-6%) Mid-teens WhiteWave Foods (15-18%) Less than volume growth Corporate Costs (2-3%) Operating Profits High-single digits (7-8%) Leverage from share repurchase +++ and/or debt paydown Double-digit EPS Growth Earnings Per Share Growth* *excludes any future restructuring or other one-time items
  44. 44. Well positioned for sustained double-digit EPS growth Value $2.10 2.15 E $1.83 $1.48 $1.31 $1.15 2002 2003 2004 2005 2006
  45. 45. Dean Foods Company Prudential Equity Group’s 15th Annual Back-To-School Consumer Conference September 7, 2006
  46. 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, 2002 2003 2004 2005 2005 2005 2005 2005 2006 2006 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 0.07 0.04 0.09 0.15 0.03 0.01 0.07 0.04 0.02 0.02 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 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

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