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DF CAGNY 2007_Final

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  • 1. Dean Foods Company Consumer Analyst Group of New York Annual Conference February 21, 2007
  • 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. Agenda The New Dean Gregg Engles WhiteWave Joe Scalzo Dairy Group Jack Callahan Summary and Outlook Gregg Engles
  • 4. Dean Foods Is the Only National Dairy Beverage 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
  • 5. Strong Branded Position Complemented by Private Label… National Brands Private Label 33% Branded Sales 67% Strong Regional Brands Dean Foods 2006 Sales Mix
  • 6. …With the Country’s Only National Manufacturing System…
  • 7. ...Delivered Through the Most Extensive National Refrigerated Sales and Distribution Network DSD Warehouse 160,000 refrigerated Broad grocery and retail locations served capability, including natural foods channel 6,500 DSD routes nationwide Extensive foodservice / QSR system 2,600 tractors 4,400 straight trucks 5,300 refrigerated trailers Any customer, any channel
  • 8. Dean Foods: 2006 Scorecard Long-term Algorithm 2006 Result Mid-single digits Dairy Group +6% (5-6%) Mid-teens +21% WhiteWave Foods (15-18%) Less than volume growth (2.4%) (2-3%) Corporate Costs High-single digits +9% (7-8%) Operating Profits Leverage: share repurchase +++ +++ and/or debt paydown Earnings Per +16% Double-digit Share Growth* EPS Growth *excludes restructuring and other one-time items
  • 9. Historical EPS Growth $2.12 2002 - 2006 $1.83 Adjusted EPS* CAGR = 17% $1.48 $1.31 $1.15 2002 2003 2004 2005 2006 GAAP EPS $1.28 $1.67 $2.01 $1.08 $1.53 from continuing operations See reconciliation of these at www.deanfoods.com and in Appendix A of this presentation *Adjusted to omit the net impact of facility closing costs and one time charges and discontinued operations.
  • 10. Consistent Operating Income and Stable Cash Flow Generation Cash Flow from Operating Income from Continuing Operations Continuing Operations* ($ millions) ($ millions) Capex: $260 $301 $287 $237 $580 $651 GAAP $536 $574 Op. Inc. FCF: $125 $113 $255 $323 * Excludes divestures and non-recurring items, See Appendix A for reconciliation
  • 11. Focus on Sustained Shareholder Value Creation Announced sale of $45 Iberian operations CAGR = 26% TreeHouse $40 Spin-off Acquired 100% of $35 Horizon Organic $30 Acquired Acquired minority Dean Foods Added to interest in $25 S&P 500 Index Horizon Organic Began WhiteWave $20 consolidation Acquired Southern Foods $15 IPO $10 Acquired White Wave Acquired $5 Morningstar $0 2006 2007 1996 1997 1998 1999 2000 2003 2002 2005 2001 2004 YTD Source: Bloomberg as of 2/16/2007 Note: Share price appreciation reflects stock-split adjusted price.
  • 12. Dean Foods Evolution Transition Consolidation 1994 - 2001 2002 - 2006 75 fold US dairy Shifting volume to more revenue growth from efficient facilities, 1994 to 2002 elimination of excess capacity – $100 million to $7.6 billion Demonstrated ability to drive market share Expanded from 2 facilities to over 100 Significant management focus on portfolio Developed only rationalization and nationwide footprint in WhiteWave the industry consolidation Four times larger than Early steps towards nearest competitor developing the future Primary focus on Dairy Group operating rollup, limited change model to local dairy operating model
  • 13. Dairy Category Still Has Tremendous Upside Traditional Dairy New Dairy Consolidated industry Fragmented industry Single national player – Local companies Dean Foods is the #1 health & Locally managed, lack of wellness and #3 non-alcoholic functional expertise beverage company in U.S. Growing profitability; Limited profitability and resources to invest financial resources Investment in innovation Infrequent innovation and marketing Limited marketing Emergence of national brands High private label penetration Strong regional brands Greater consumer focus on nutrition
  • 14. Dean Foods Evolution Transition The New Dean Consolidation 1994 - 2001 2002 - 2006 2007 - 2010 75 fold US dairy Shifting volume to more Evolve the operating revenue growth from efficient facilities, model to maximize the 1994 to 2002 elimination of excess benefits of scale capacity advantage – $100 million to $7.6 billion Demonstrated ability to Strengthen functional drive market share expertise to: Expanded from 2 facilities to over 100 – Sustain year on year Significant management productivity focus on portfolio Developed only – Enhance selling rationalization and nationwide footprint in capability, brand WhiteWave the industry building and consolidation innovation Four times larger than Early steps towards nearest competitor Ensure pace of change developing the future does not inhibit Primary focus on operating model business performance rollup, limited change to local dairy operating Opportunity to sustain model strong operating profit growth
  • 15. Building the New Dairy Model The New Dean Foods The New Dean Foods Step-Up Strengthen Brand Strengthened Stepped Up Increase Increased Selling Building Selling Brand Building Productivity Productivity Systems and Innovation Systems And Innovation
  • 16. WhiteWave Foods Starting Point: 2004 Where We Are Today: 2007 Consolidated and Three separate businesses integrated three businesses – Overlapping organizations into one – Significant redundancy – Single face to the – Variety of systems customer Complex and inefficient – Reduced redundancy manufacturing and – Leveraged scale distribution Implementing SAP for – Over 12 internal efficiency and business production sites insight – 30+ co-packers Building direct sales model, Limited selling and company-wide innovation marketing capability center, and world-class marketing organization Update From Joe Scalzo, CEO and President, WhiteWave Foods
  • 17. Dairy Group Starting Point: 2005 Where We Are Today: 2007 Moving forward on a multi- Highly decentralized year productivity – 57 Business Units enhancement program – 139 P&L’s – Purchasing Limited scale leverage – Administration – Some plant – Manufacturing rationalization Shifting operating model to – Cooperation on some balance national scale with direct materials local accountability Significant redundancy Looking to build expertise Mixed functional expertise in marketing and DSD over time Update From Jack Callahan CFO, Dean Foods
  • 18. Agenda The New Dean Gregg Engles WhiteWave Joe Scalzo Dairy Group Jack Callahan Summary and Outlook Gregg Engles
  • 19. WhiteWave Foods: Overview Core Brands 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 Brand Mix 2006 Performance Sales: $1,278M Operating Income: $139M, +21%
  • 20. Transition to a Unified WhiteWave Business is Near Complete; Margin Expansion Along the Way ~2008+ 2005 2006 2004 Net sales: $1,042M $1,201M $1,278M Top-tier CPG Op mgn (%): 8.4% 10.9% 9.6% performance The New and superior returns WhiteWave: Sustainable growth Increase Transition Three productivity to one Strengthen separate, integrated selling systems legacy Step-up brand business companies building and innovation 2004 2008+ 2007 2005 2006
  • 21. Building the New Dairy Model Step-Up Strengthen Brand Stepped Up Strengthened Increase Increased Selling Building Brand Building Selling Productivity Productivity Systems And and Innovation Systems Innovation
  • 22. Increase Productivity: Supply Chain Under-leveraged Unfocused Complex Manufacturing Portfolio Distribution 2004 65 12 Company 2,600 SKU’s Inventory Owned Plants and Manufactured Locations 30+ Co-packers In-house Reduce Drive top production product 2005 - products (5 plants, movement, 2006 (~700 SKUs) 3 strategic maximize co-packers) truck loads Leveraged, integrated supply chain 2007 Focused Efficient Optimized and Product Manufacturing Distribution beyond Portfolio
  • 23. 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
  • 24. 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
  • 25. Building the New Dairy Model Step-Up Strengthen Brand Strengthened Stepped Up Increase Increased Selling Building Selling Brand Building Productivity Productivity Systems And Systems and Innovation Innovation
  • 26. 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 DSD Single Serve Alternative Channels
  • 27. Building the New Dairy Model Step-Up Strengthen Brand Strengthened Stepped Up Increase Increased Selling Building Selling Brand Building Productivity Productivity Systems And Systems and Innovation Innovation
  • 28. 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
  • 29. Step-Up Branding and Innovation: 2007 Single Serve Value-added Value-added New Products New Products Expansion Line Extensions Line Extensions
  • 30. Core Brand Overview Strategic Summary Strategic Summary No. 1 soy beverage Compelling health benefits Significant growth potential by targeting consumer prospects: • 2006 Brand Sales: ~$360MM – Only 11.5% HH penetration (up 1% point from year ago)2 • 12% increase vs 2005 – Soymilk households consume • 75% market share1 three times as much conventional milk as soymilk3 Driving cost from the supply chain through scale and efficiencies 1. IRI, Spins, IRI Wal-Mart panel data 2. IRI Household Panel. 3. Cambridge Group – Demand Landscape March 2006. Investing in innovation
  • 31. Core Brand Overview Strategic Summary Strategic Summary Continue to focus on supply growth – 25%+ organic milk supply increase in 2007 (vs. year ago)2 Significant growth potential from penetrating consumer • 2006 Brand Sales: ~$315MM prospects – ~4% household penetration vs. 33% of • 24% Milk Increase vs 2005 households interested in organic milk 3 • 45% market share1 Demand-driving initiatives under way – New Products – Distribution 1. IRI, Spins, IRI Wal-Mart panel data – Single Serve 2.Company estimates 3.Cambridge Group – Demand Landscape March 2006.
  • 32. 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 yogurt Introduce brand to U.S.
  • 33. 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
  • 34. Agenda The New Dean Gregg Engles WhiteWave Joe Scalzo Dairy Group Jack Callahan Summary and Outlook Gregg Engles
  • 35. Dean Dairy Group: Overview #1processor and distributor of Representative Brands milk and dairy products in the U.S. Leading portfolio of well- known regional brands, with private label offerings Broad customer reach and Product Mix strong relationships Unparalleled refrigerated U.S. distribution network 2006 Performance Sales: $8,821M Operating Income: $678M, +6%
  • 36. Building the New Dairy Model Step-Up Strengthen Brand Strengthened Stepped Up Increase Increased Selling Building Selling Brand Building Productivity Productivity Systems And Systems and Innovation Innovation
  • 37. Significant Compressible Cost Opportunity Estimate 2006 Cost Base = $8.14 B 100% Operating Expense 80% 60% COGS 40% 20% 0% Traditional P&L View: Dairy Group
  • 38. Significant Compressible Cost Opportunity Estimate 2006 Cost Base = $8.14 B 100% Operating Expense 80% 60% COGS 40% 20% Milk/Cream 40% 0% Traditional P&L Alternative P&L View: Dairy Group View
  • 39. Significant Compressible Cost Opportunity Estimate 2006 Cost Base = $8.14 B 100% Operating People Related Expense 22% 80% Direct Materials Compressible 20% Costs 60% ~$5B Indirect Purchases COGS 12% Capital 2% 40% Other 4% 20% Milk/Cream 40% 0% Traditional P&L Alternative P&L View: Dairy Group View
  • 40. Purchasing: Starting Point Understaffed organization Buyer roles combined strategic sourcing with Organization execution Majority of category spend unmanaged Category Primarily price focused vs. total cost of management ownership/system cost emphasis Limited plant compliance with local buying Limited ability to track performance metrics Compliance
  • 41. Purchasing: The Opportunity $1.9B $1.1B Other Direct Materials Indirect Purchases Other Ingredients / Commodities* Utilities MRO Packaging Logistics Includes both Dean Dairy Group & WhiteWave *Notes: Ingredients/ commodities does not include raw milk, cream or soybeans: 2005 cost base Source: Internal data, including Dairy Group, and WWF
  • 42. Purchasing: Where We Are Today New experienced leadership in place Establishing a disciplined sourcing process Organization Detailed understanding of total spend Category Leverage competitive bidding to drive results management Set high expectations of our suppliers Measure performance against expectations Ensure compliance Compliance Foundational Work Complete in 2006
  • 43. Purchasing: Prioritized Into Multiple Waves 2008- 2009+ 2007- 2008 Wave II Wave III Wave I High $ Impact Low High Low Ease of implementation Delivering Net Benefits in 2007 - Several Years of Benefits Expected
  • 44. Administration: Starting Point >2,000 people and Historically local and $110 million decentralized staffing Multiple systems and organization Other structures Accounting, payroll, and accounts payable HR & Payroll at over 60 locations Opportunity to: Finance Current – Keep activities local & Focus of that need to be local initiatives Accounting – Centralize activities that can be shared
  • 45. Finance: A More Specialized, Capable Function Financial Planning and Control & Reporting Shared Services Analysis Efficient Transaction Forward Looking Actual Result Processing Orientation Orientation Key Focus: Key Focus: Key Focus: Influencing decision Financial statement Consistent and high quality service for our making and bottom line consistency, integrity & partners and performance reporting employees Aligned with field Transitioning into three Created Dean Financial management structure primary locations Services in Dallas Requires An Investment in 2007
  • 46. Manufacturing: Continue to Drive Costs Lower Continue optimization of the manufacturing Continued footprint Focus Developing common metrics in cooperation with the realigned Finance Organization Improve underperforming operations Best practices Longer-Term Continuous Development improvement programs
  • 47. Building the New Dairy Model Step-Up Strengthen Brand Stepped Up Strengthened Increase Increased Selling Building Brand Building Selling Productivity Productivity and Innovation Systems Systems And Innovation
  • 48. Working Toward a Transition from a Geographic Focus to a System Focus Refrigerated Frozen Selling DSD Warehouse DSD & System Warehouse Primary Ice Cream, Milk, Cream, ESL Cream, Novelties Product Juice, Yogurt, Cottage Drinks, Cheese, Sour Line Water Cream, Ice Cream Mix Shelf Life 2-3 weeks 2-3 months 9-12 months Estimated 10% Sales Mix 75% 15% (% of total)
  • 49. 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 customers Private label offering builds close working relationships with key customers, in addition to scale leverage Investing in technology to further improve customer services, eg: ASN, UCCNet
  • 50. Brand Building: Regional Dairy Brands Investing to strengthen Marketing leadership and capability
  • 51. Extensive Dairy, Beverage and Functional Expertise Alan Bernon Dairy: 31 yrs Dean: 10 yrs John Robinson Harrald Kroeker Business TBD Unit Morningstar/ Dairy DSD Ice Cream / Frozen Leadership Warehouse Dairy: 25 yrs CPG: 26 yrs Dean: 8 yrs PBG: 20 yrs Years Of Experience •Dairy 98 Functional Staff •Dean 44 •Beverage 22 •HR 22 •Finance 25 •Purchasing 30
  • 52. Dairy Group 2007 Algorithm -1% ~ +5% +2% +2% Investments +2% Purchasing $678 M Productivity Volume/ Mix $642 M $597 M % 6.6 = R AG C r a Ye 2 2004 2007 E 2005 2006
  • 53. Agenda The New Dean Gregg Engles WhiteWave Joe Scalzo Dairy Group Jack Callahan Summary and Outlook Gregg Engles
  • 54. Building the New Dairy Model The New Dean Foods The New Dean Foods Step-Up Strengthen Brand Strengthened Stepped Up Increase Increased Selling Building Selling Brand Building Productivity Productivity Systems and Innovation Systems And Innovation
  • 55. 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%) High-single digits Operating Profits (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
  • 56. 2007 Outlook Operating profit: ~7% growth EPS: $2.33 - $2.38 10% - 12% growth Capital Expenditures: ~$250 M Q1 EPS Expectations: $0.44 - $0.46 10% – 15% growth
  • 57. Dean Foods Company Consumer Analyst Group of New York Annual Conference February 21, 2007
  • 58. 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) Fiscal Year Ended December 31, 2002 2003 2004 2005 2006 $ 475,906 $ 573,683 $ 535,745 $ 580,095 $ 650,695 Operating Income (GAAP): 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 - $ 494,957 $ 516,751 $ 554,420 $ 618,694 $ 675,811 Operating Income (Adjusted): $ 1.08 $ 1.53 $ 1.28 $ 1.67 $ 2.01 Diluted EPS from continuing operations (GAAP): 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 - $ 1.15 $ 1.31 $ 1.48 $ 1.83 $ 2.12 Diluted EPS from continuing operations (Adjusted)

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