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Dean Foods (NYSE:DF)

Q4 2012 Earnings Call

February 13, 2013 10:30 am ET

Executives

Barry Sievert - Vice President of Investor Relations

Gregg A. Tanner - Chief Executive Officer and Director

Shaun P. Mara - Chief Financial Officer and Executive Vice President

Chris Bellairs

Gregg L. Engles - Chairman and Chairman of Executive Committee

Analysts

Amit Sharma - BMO Capital Markets U.S.

Matthew C. Grainger - Morgan Stanley, Research Division

Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

Eric R. Katzman - Deutsche Bank AG, Research Division

Farha Aslam - Stephens Inc., Research Division

David Palmer - UBS Investment Bank, Research Division

Robert Moskow - Crédit Suisse AG, Research Division

John J. Baumgartner - Wells Fargo Securities, LLC, Research Division

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Operator

Good morning and welcome to the Dean Foods Company Fourth Quarter 2012 Earnings Conference Call. Please note that today's call is being recorded and also being broadcast live over the Internet on the Dean Foods corporate website. This broadcast is the property of Dean Foods. Any redistribution, retransmission or rebroadcast of this call in any from without the express written consent of the company is strictly prohibited.

At this time, I'd like to turn the call over to Mr. Barry Sievert for opening remarks, Vice President of Investor Relations. Please go ahead, sir.

Barry Sievert

Thank you, Shelley and good morning, everyone. Thanks for joining us on our Fourth Quarter Earnings Conference Call. This morning, we issued an earnings release, which is available on our website at deanfoods.com. The press release is also filed as an exhibit to a Form 8-K, which is available on the SEC's website at sec.gov. Also available during this call at the Dean Foods website is a slide presentation, which accompanies today's prepared remarks. A replay of today's call, along with a slide presentation, will be available on our website beginning this afternoon. Throughout today's call, the earnings per share, operating income and interest expense information that will be provided are from continuing operations and have been adjusted to exclude expenses related to facility closings and reorganizations, asset write-downs, and litigation matters, as well as goodwill impairments, transaction-related costs, gains or losses from the divestitures of assets and other nonrecurring items. In addition, pro forma adjustments were made to include Morningstar in continuing operations, eliminate the noncontrolling interest adjustment for the portion of the WhiteWave Foods Company that we do not own and to reflect transactions between our segments under our former intercompany operating agreements. This is shown this way to enable you to make a meaningful evaluation of our operating performance between periods and to make reasonable comparisons to the guidance we gave in November 2012 and our reported 2011 adjusted results.

In addition, we are in the midst of a transformation of the business, from 3 operating platforms to 1. In order to show meaningful comparisons for the periods presented, we will be presenting a second view of our 2012 financial results, which is adjusted to exclude Morningstar and WhiteWave. It also incorporates the new market priced cross entity pricing agreements. This view is designed to give investors a base for modeling the business on a go-forward basis after the WhiteWave spin-off. The earnings release contains a more detailed discussion of the reasons why these items are excluded from the consolidated results, along with reconciliations between GAAP and pro forma adjusted earnings and between net cash flow from continuing operations and free cash flow from continuing operations.

The WhiteWave Foods Company released fourth quarter results and held an investor conference call earlier today. We will not be discussing their results but would refer you to their press release, Form 8-K filing and the replay of their conference call, which is available on their website, at thewhitewavefoodscompany.com, for more information on their performance. We would also like to advise you that all forward-looking statements made on today's call are intended to fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements will include, among others, disclosure of earnings targets as well as expectations regarding anticipated cost savings, leverage ratios and various other aspects of our business, including the proposed spin-off or other distribution of our remaining ownership interest in the WhiteWave Foods Company. These statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today's conference call. Information concerning those risks is contained in the company's periodic reports on forms 10-K and 10-Q as well as in today's earnings release. Participating with me in the prepared section of today's call are Gregg Tanner, our Chief Executive Officer; and Shaun Mara, our Chief Financial Officer. Greg Engles, our Chairman, and Chris Bellairs, who will be assuming the role of CFO of Dean Foods following our year-end reporting cycle, are also on the call this morning to participate in the Q&A portion of the call. Mr. Tanner will start us off with an update on the WhiteWave spin-off plan, the Morningstar sale and the review of Dean Foods fourth quarter and full-year performance. Mr. Mara will then offer some additional perspective on our financial results before turning the call back to Mr. Tanner for comments on the forward outlook and other closing remarks. We will then open the call to your questions. With that, I will turn the call over to Mr. Tanner for his opening remarks. Gregg?

Gregg A. Tanner

Thank you, Barry, and good morning, everyone. Thanks for joining us on the call this morning. As I'm sure you've seen from the press release, the fourth quarter marked a solid finish to a very strong year. Before getting into the results, however, I'd like to provide an update on our effort to unlock shareholder value through a separation of WhiteWave from Dean Foods. We recently reviewed the private letter ruling from the IRS required to ensure the tax-free nature of the spin-off of WhiteWave Foods Company from Dean. As a result, we are moving forward with our plans to affect the full separation of the business. The post-IPO lockup period expires April 23, 2013. Accordingly, our plan is to spin-off shares to Dean Foods shareholders in late May. We plan to retain up to 19.9% of the outstanding WhiteWave shares, or up to 34.4 million shares, which we expect to monetize or distribute in a tax-free manner at a later date. In connection with the spinoff in our Annual Shareholders' Meeting in May, we are also looking -- working toward initiating a reverse split of Dean Foods shares. The ratio of the reverse split has not been determined. We are pleased to reach the final stages of this strategic realignment of Dean Foods, and gratified by the shareholder value we have been able to unlock through this process.

As you know, in addition to the WhiteWave IPO and spin-off activity, we also announced the sale of the Morningstar business to Saputo for $1.45 billion in the fourth quarter. The sale, which was completed on January 3, significantly strengthened Dean Foods' balance sheet and increased our financial flexibility. I'd like to thank the Morningstar employees for their many contributions and dedication to Dean Foods over the years, and wish them well in the next chapter of their business lives. Dean will continue to support them in many ways for 6 to 12 months through customary transition service agreements. We expect the Morningstar transaction to result in at least $887 million in net proceeds, after tax payments and transaction expenses, including the $60 million paid to WhiteWave in the associated asset sale. Tax payments associated with the Morningstar sale will begin -- will not begin until the second quarter, allowing us to benefit from the additional cash on our balance sheet for some time, and lowering our 2013 quarterly leverage and interest expense. We expect to pay 1/2 of the total tax bill in Q2, 25% in Q3 and the remaining 25% in Q4.

These proceeds are combined with our strong 2012 operating cash flows and the proceeds related to the WhiteWave IPO, we have reduced total net debt outstanding at the Dean Foods level by over $2 billion in the last year. Let me repeat that. We have reduced total net debt outstanding at the Dean Foods company by over $2 billion in the past year.

As of the end of the fourth quarter, total net debt outstanding, excluding WhiteWave's standalone debt, stood at $2.3 billion. Dean Foods leverage ratio, as defined by our credit agreement, was 3.54x, a decline from 3.71x at the end of Q3. This is a reduction of over a full turn from the end of 2011 and more than 1.5 turn below Q4 2010. This is before the impact of the Morningstar sale, which I noted earlier, closed early in 2013.

On a pro forma basis, which includes the expected after-tax net proceeds from the Morningstar sale and excludes the related EBITDA, our leverage is 2.85x. Furthermore, due to the timing of the tax payment schedule, our only current outstanding debt is our $1 billion in bonds. Following the Morningstar sale and excluding WhiteWave, our interest expense run rate is approximately $115 million per year, which is over $100 million decline from 2010. We are very pleased with the progress of these transactions and their positive impact on the Dean Foods balance sheet. We are in a strong position to move forward with our strategic plans, including our accelerating -- our cost reduction efforts, which I will discuss later in the call. Now let me turn to the operating results for the quarter.

On an adjusted pro forma basis, which is consistent with 2011 adjusted results, and our fourth quarter guidance, we earned $0.40 per diluted share, a 48% increase from a year-ago period, and well above our guidance of $0.27 to $0.32 per share. Q4 marked our sixth consecutive quarter of year-over-year operating income and EPS growth. For the full year, pro forma adjusted consolidated earnings per diluted share of $1.39, or 81% above 2011 adjusted earnings.

Fourth quarter adjusted pro forma consolidated operating income of $157 million compares to $135 million reported in Q4 2011, a 16% year-over-year increase. Full-year adjusted pro forma operating income of $611 million was 32% above 2011 levels.

As I mentioned earlier, we continue to deleverage the company, reducing our debt outstanding at the Dean Foods Level, excluding WhiteWave debt, by $1.4 billion over the course of 2012 through strong operational cash flows and the WhiteWave IPO. Overall, I'm very proud of our employees in the fourth quarter and full-year 2012 that they delivered in the face of a challenging environment.

With that overview, let's look at the performance of the business in a bit more detail, focused in particular on the ongoing Dean Foods Fresh Dairy Direct business. At FDD, our employees are to be commended for the results they delivered through a continued focus on the fundamentals of the business, which include volume performance, cost control and effective pricing to offset the impact of commodity inflation. And importantly, we delivered these objectives while never losing sight of our commitment to quality, safety and service.

This has resulted in a strong turnaround in the business in 2011 and 2012. In 2012, the results of our focus were clear. We drove material cost reduction across the business, we grew share and gained customers, and we effectively priced to offset rising commodity costs, resulting in significantly increased profitability.

Our field organization effectively passed through inflationary commodity costs in the third and fourth quarters. Class I raw milk prices rose materially every month of Q3 and Q4, hitting a near historic peak of $21.39 in December. This is the third highest month in the last 5 years and 40% above the low of the year hit in June. On average, the Q4 Class I price was 23% higher than the previous quarter. Despite this challenging rise in costs in the back half of the year, and Q4 in particular, fourth quarter gross profit per gallon was above both Q3 and year-ago levels, demonstrating the benefits of our focused agenda and beginning to break the old paradigm that we're reliant on favorable commodity prices to perform. The Class I Mover hit its near-term peak in December. Since then, prices have declined in both January and February, and are expected to fall again in March. The Q1 average price is expected to be approximately 10% below Q4. Looking ahead, while varied economists have varied opinions, we expect Class I prices to trade in a relatively narrow range and to average roughly this price level through at least the first half of the year.

Despite the rise in retail prices, industry volumes improved in the fourth quarter from third quarter levels. As we discussed last quarter, the USDA publishes an adjusted volume number and methodology that normalizes for the number and quality of days in the period. On this basis, industry fluid milk volumes continued their trend of improvement, declining just under 1% in Q4 from the year-ago period. Although we are lapping some volume gains from a year ago, our volumes continue to outperform our peers in the fourth quarter. This better industry volume performance is a significant and welcome improvement from earlier trends.

Total overall industry and Dean Foods volumes are likely to dip slightly on an absolute basis in the first quarter due to the overlap of leap year. However, on a per-day basis, our volumes through January are tracking at levels consistent with the improved fourth quarter trends.

Consistent with our strategy, we also maintained our focus on cost reductions in 2012, helping to deliver solid bottom line results. Initiatives across distribution, manufacturing and SG&A reduced cost and helped drive our turnaround in 2011 and 2012. You can see the dramatic impact when you look at our Q4 2012 spend versus Q4 2010. More specifically, we reduced SG&A costs, excluding incentive compensation and advertising, by $51 million in the fourth quarter from Q4 2010. Across the supply chain, we more than offset inflation to reduce costs, excluding fuel, by $15 million in the fourth quarter. And as a result of our focus on debt reduction, our interest expense in Q4 2012 was $11 million below Q4 2010 levels. Adding this up, over the past 2 years, excluding the impacts of advertising, incentive compensation and fuel, we have reduced expenses at FDD and corporate by over $77 million per quarter. Annualized, this equates to over $300 million of yearly cost.

With debt reduction from the net proceeds of the WhiteWave IPO and the Morningstar sale, we expect our interest expense to decline by an additional $25 million per quarter. The elements of our focused strategy came together in Q4 to deliver solid results. Q4 Fresh Dairy Direct gross profit was $509 million, roughly flat with year-ago results, despite the significantly more challenging commodity environment. Disciplined cost management parlayed our gross profit performance into $102 million of FDD operating income on an adjusted pro forma basis, a 2% increase over the 11% growth posted in the year-ago period and the fifth straight quarter of operating income growth for this platform. With a significantly strengthened balance sheet and clear momentum behind our core objectives, we enter 2013 on solid footing. With that, I will turn the call over to Shaun for a review of the consolidated P&L. Shaun?

Shaun P. Mara

Thank you, Gregg, and good morning, everyone. I'll walk through the Q4 and full-year results by platform and then take you through the P&L for the same period. These slides show adjusted pro forma Q4 and full-year 2012 results on the same basis as our guidance and reported 2011 adjusted results, allowing for an apples to apples comparison. Again, this includes Morningstar's results as well as our intercompany pricing in place prior to the WhiteWave IPO. The fourth quarter was stronger-than-expected, particularly in FDD. As Gregg noted, FDD delivered 2% growth in Q4 operating income despite significant commodity headwinds. Morningstar's strong 31% growth was driven by continued innovation and close customer partnerships. And WhiteWave's advantage categories, strong stable of products and new innovations delivered strong growth with operating income 12% above year-ago levels on a pro forma adjusted basis. Corporate expenses declined 13% from prior year as we continue to focus on reducing SG&A costs across the business. The net result for Q4 was consolidated operating income growth of 16% and full-year operating income growth of 32%. It is this strong performance from across the business that has enabled the value-creating strategic actions like the Morningstar sale as well as the WhiteWave IPO and planned spin-off.

Looking at the pro forma adjusted P&L view, which again presents an apples-to-apples basis to 2011 and our guidance, Q4 gross profit increased 4%. Operating expenses were up slightly, driven largely by increased advertising and fuel costs. Although SG&A costs were flat overall, SG&A costs excluding incentive compensation and advertising, declined $10 million, or 5%, from the year-ago period. As I mentioned, operating income increased 16%. Also, as a result of our debt reduction, interest expense was $7 million below year-ago levels. The result of all this is Q4 net income growth of 47% and diluted EPS growth of 48% from the year-ago period.

By a pro forma adjusted basis for the full year 2012, gross profit increased 5%. Operating expenses were flat despite a $29 million increase in advertising. In fact, SG&A, excluding incentive compensation and advertising, declined $93 million, or 11%. Operating income of $611 million was 32% above 2011 levels. Below operating income, a $33 million decline in interest expense and flat tax rate translated into full year net income growth of 83%, and 81% growth in diluted EPS to $1.39 for the year. Overall, 2012 represents a strong turnaround for the business from the challenges we faced in 2010 and 2011.

2012 was also a very successful year from the cash flow perspective. Full-year operating cash flow from continuing operations, which excludes Morningstar, was $384 million. Capital expenditures totaled $228 million, resulting in free cash flow from continuing operations of $156 million.

This strong cash flow, augmented by the strategic actions taken to date had allowed Dean Foods to reduce net debt by over $2 billion over the past 12 months, putting the company on solid financial footing and in a sound position to spin off WhiteWave in May. Finally, as Gregg mentioned earlier, our plan is to retain up to 20%, or a 34.4 million share stake, in WhiteWave to provide Dean significant financial flexibility going forward.

As we look to 2013, the new Dean Foods will be reporting much different than the results we just reviewed. The first big change is that we will exclude the results of Morningstar from Dean Foods results due to the sale. Second, concurrent with the spin-off in Q2, we will also exclude WhiteWave from Dean Foods results and record it as a discontinued operation. Lastly, our reporting will also account for changes in cross-entity pricing as part of the separation of the businesses, which we discussed on the Q3 call and implemented in November 2012.

Therefore, Slide 15 shows 2012 results on a basis consistent with how we will report the business after the spinoff and going forward. We wanted to present the 2012 results on this basis to provide a foundation for 2013 comparisons as we think it is the best view of the ongoing business.

To walk across the page, the changes in cross-entity pricing increased FDD's base operating income by $12 million for 2012. The move of Morningstar to disc-ops results in a $6 million increase in corporate costs, representing a reversal of corporate costs charged to Morningstar that were not directly assignable to Morningstar. Additionally, when WhiteWave results are disc-opped at spin-off, it will result in a credit of $8 million to Dean Foods' corporate expenses, representing incremental signable cost above previous allocations. The net result is a revised 2012 base for FDD of $440 million of operating income that represents the 2012 results, assuming the new intercompany pricing as of January 1, 2012.

A revised corporate cost spend of $184 million, representing Dean corporate cost after eliminating a directly assignable cost from Morningstar and WhiteWave as of January 1, 2012, yielding a consolidated 2012 operating income number of $257 million and a 2012 EBITDA number of approximately $435 million, which is consistent with the structure of the business in 2013.

We have provided more detail, including quarterly presentations and reconciliations in our press release today. Additionally, because we will only have one operating platform with all corporate activities focused on supporting FDD, when the spin-off of WhiteWave occurs, we plan to report corporate and FDD together as one segment.

Finally, today is my last call as CFO of Dean Foods. I'd like to leave by thanking the employees of Dean Foods, as well as our investors for their support. My time at Dean has been extremely fulfilling and I think we have greatly improved the financial position of Dean for our shareholders. As I move on, I am confident in Chris Bellair's ability to fill the CFO role and believe Dean is well-positioned for continued success going forward. With that, I will now turn the call back to Gregg Tanner for comments on our corporate strategy going forward as a more focused, lower-levered business, as well as a review of our 2013 outlook. Gregg?

Gregg A. Tanner

Thanks, Shaun. Clearly, 2012 was a successful year for Dean Foods and with a narrowed focus and strong financial platform, we are well-positioned across many fronts heading into 2013. I'd like to now spend a few minutes discussing how we see the business going forward. With the separation of Morningstar and expected full separation of WhiteWave from Dean Foods, our focus will narrow to our core business of Fresh Dairy Direct, where 3/4 of the business is focused on the fluid milk category. The fluid milk category enjoys a number of attractive attributes. First, fluid milk is ubiquitous. It is a nutritious and healthy product that is found in over 90% of U.S. homes. As a result, fluid milk is a very large category, with roughly $20 billion of annual sales. This size and pervasiveness, plus the perishability of the product, make it an important category for retailers and consumers, as well as a large, long-term opportunity for the best-positioned processor.

However, the fluid milk industry is not without some well-documented challenges. A slow decline in consumption per capita, lower birth rates, demographic shifts, have resulted in a flat to modestly declining fluid milk consumption. Those factors, combined with increased industry efficiencies has led to significant excess processing capacity over time. Additionally, the industry remains highly fragmented, with over 150 processors in the U.S., while the customer base of retailers has consolidated significantly over the past decades. With these business dynamics, we believe there are several reasons why we are uniquely positioned to win over the long term. For example, as a function of our scale and capabilities, we believe we have unique opportunities to reduce costs and drive efficiencies that few of our competitors can match. We are the largest processor and distributor in the country. In fact, we are roughly 5x the size of our next largest competitor and uniquely positioned as the only processor with a coast-to-coast network. This position brings unique capabilities and cost-reduction opportunities. We believe we have many years of significant cost-reduction opportunities ahead of us across the supply chain and SG&A as we work to create a significantly advantaged low-cost position. Our relative size means that in procurement, for example, we can drive greater savings across our major purchases like resins, paperboard and fuel. Also, while the majority of our competitive set is comprised of relatively small operations with limited options for improving capacity utilization, our coast-to-coast network allows us opportunity to significantly improve asset utilization, drive efficiency and lower our cost per unit through network optimization activities. We expect to accelerate the activities in this area, which I'll discuss more in a moment.

Additionally, because we operate dozens of production facilities across the country, we are able to discover and distribute best practices through a professional continuous improvement team that works hand-in-hand with local management to increase in-plant efficiency through employee-led initiatives and workflow optimization. In distribution, our relative size and superior financial and technical resources allow us to use leading picking and routing technologies to increase the productivity of our distribution system and reduce miles driven and assets required. Although we've been working to take cost out of distribution for several years, we believe we have only begun to realize the opportunities to drive savings in this area of the business. We have also materially reduced SG&A expense over the past 2 years. We plan to further reduce costs in this area over the coming years as we remove stranded cost left after the Morningstar and WhiteWave separations.

Our success in pursuing our cost reduction strategy is driven by the best employees and management in the industry and augmented by a strengthened financial position that increases our flexibility to invest in productivity and growth while continuing to deleverage. Based on this model, over the coming years, we expect to average mid-single-digit consolidated operating income growth and to achieve and maintain leverage below 2.5x. We will maintain a focus on free cash flow generation and total shareholder returns.

With that said, our strategy for 2013 is relatively simple. We plan to build upon our strengths through a continued focus on the core fundamentals that drove our success in 2011 and 2012. We will continue to work to drive volume performance at attractive economic returns. We have grown share over the past 2 years. However, business in our industry is regularly put out for bid. In a recent bid by a significant customer, we lost a portion of our low-margin, private label milk volume. As a result, we expect our volumes to underperform the industry in 2013. We believe this volume loss was a result of strategic sourcing decisions by the customer as well as pricing discipline on our part. We feel very good about the business we kept with the customer and we continue to pursue other volume opportunities at price levels that make economic sense. As a result of this RFP, for 2013, we expect total volumes to decline in the low single digits.

We will also continue our focus on cost, taking advantage of our unique position and cost reduction opportunities to create a significantly advantaged low-cost position in private label milk. This is our #1 near-term priority, and with our improved balance sheet, we plan to accelerate our investment behind these efforts in 2013. As I said earlier, we entered the year with strong momentum behind our cost-reduction efforts, and we expect to accelerate those efforts to offset the financial impact of declining volumes and reduce our overhang of excess capacity in our system. On a fully loaded basis, some of our private label business, including the volume we recently lost, was very low profit margins.

We will therefore move aggressively in 2013 and beyond to eliminate unnecessary fixed cost and underutilized capacity. In 2013, that will mean an expedited effort to close more capacity than what was represented by the lost volumes. In total, we expect to accelerate the closing of 10% to 15% of our plants to eliminate fixed costs, as well as an effort to eliminate a significant number of distribution routes as well as associated SG&A. These initiatives will provide some benefit in the back half of 2013 and will mitigate some of the impact of private label volume decline. But their most significant benefit will be in 2014 and beyond. Additionally, major cost reduction initiatives already underway across distribution, continuous improvement, procurement and SG&A will continue. Lastly, we'll continue to improve our pricing protocols to ensure that we pass through commodity inflation and reduce commodity-driven volatility in our results. New pricing tools and increased focus have produced strong results that we plan to build on in 2013.

Turning to the forward outlook, as we separate Morningstar and WhiteWave from Dean, we will continue to focus on driving value in our core business and expect to build on the success of 2012 to deliver solid 2013 growth. As discussed, we are accelerating structural cost-savings initiatives including multiple plant closures and route reductions this year to significantly reduce excess capacity and increase our asset utilization and reduce costs. We expect current volume trends to continue until the second quarter when the recently lost business will begin to transition out. Overall for the year, we currently expect a low-single-digit decline in total volumes and we expect to substantially offset the financial impact of the lost volume through accelerated cost reduction activities, resulting in a mid-single-digit decline in the FDD segment's operating income.

However, with significantly lower corporate costs, we expect full year operating income for Dean Foods to increase low- to mid-single digits from the fiscal year 2012 perspective base, excluding WhiteWave. With the dramatic debt production of the last year, we expect interest expense to be approximately $110 million to $115 million in 2013. We expect our full-year tax rate to be approximately 37% to 39%. As a result, for the full year, we expect diluted EPS of between $0.45 and $0.55, excluding WhiteWave and Morningstar. After backing out depreciation and amortization and other noncash items, we expect 2013 EBITDA of between $430 million and $460 million. Full year 2013 capital expenditures are expected to be approximately $150 million to $175 million. This level of expenditure is above what we believe our long-term CapEx will be, as we increase nearing spending to rightsize our network and increase asset efficiency. Longer term, we would expect CapEx to be roughly $125 million per year to focus on driving free cash flow and returning value to shareholders.

For Q1, we lose a day due to the overlap of leap year in 2012. Inclusive of this, we expect first quarter EPS of between $0.10 and $0.15 per share, excluding WhiteWave. Including the midpoint of guidance that WhiteWave gave for their results, our consolidated guidance equates to an approximate EPS range of $0.22 to $0.27 for Q1, and $1 to $1.10 for the full year.

In summary, Q4 was an important quarter. Not only was it a solid finish to a strong year but for the second quarter in a row, our field organization proved that they could meet the challenge of rising commodities and continue to perform. We enter 2013 with strong confidence in our ability to pass through rising commodity costs, dollar momentum in our cost-reduction initiatives and a continued focus on driving performance in a price-disciplined manner. While we have some challenges in the year ahead, our organization is focused and nimble with the financial flexibility to drive accelerated cost reduction and investment in the business to differentiate our competitive position. I am confident we have the right leadership team and employees to drive continued success in 2013 and beyond, and I look forward to meeting many of you in person in the months to come. Thank you for your continued interest in Dean Foods. With that, I will ask the operator to open the call up to your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Amit Sharma with BMO Capital Markets.

Amit Sharma - BMO Capital Markets U.S.

Gregg, you mentioned 10% to 15% of capacity coming out and can you provide a little bit more color of what is the timeline of that capacity coming on and as it comes on, I mean, understanding what the volume impact for this year is, next year, in 2014, how does that impact operating leverage for the business?

Gregg A. Tanner

Let me start with our network and the opportunity and ability to optimize it, I think, gives us a real competitive advantage. And I'll reiterate again that our balance sheet allows us to accelerate much of this optimization plan. We're currently working through the sequencing and timing of each of those closures. We've already announced 2 of those, and we'll announce more in the coming weeks ahead. But as far as the impact to 2013, we had identified about $80 million in cost reductions that were in our ongoing cost reduction program, and we think that these incremental -- or the acceleration of these closures would give us another 50% on top of that. So you could take another $40 million for 2013 and then you could translate that as you go into '14.

Amit Sharma - BMO Capital Markets U.S.

Got it. And as a follow-up, what gives you the confidence that the volume loss that we had in this -- in the second quarter will not repeat as we go along, as other competitors come in and bid below you?

Gregg A. Tanner

I'm sorry, the volume lost...

Amit Sharma - BMO Capital Markets U.S.

What I'm saying is you showed pretty significant pricing discipline and gave up the volume to preserve margins in that business. What gives us the confidence that more of these volume losses will not occur in future?

Gregg A. Tanner

Well, I think the biggest thing is being the low-cost provider. We're going to assure ourselves that we're the low-cost provider no matter how or whether it's in the private label business or the branded business. And I think the other thing that I would look to is, is if you look back to the past 2 years, we have gained share in almost every quarter for the last 2 years. So we've been winning bids and taking share for the last 2 years. It just happens to be that this bid was one where it got to the point where we didn't feel like we could go there.

Amit Sharma - BMO Capital Markets U.S.

And if I may have a quick, quick follow-up. The share -- the total shareholder return, is dividend part of that equation as well?

Gregg A. Tanner

Shaun, would you take that?

Shaun P. Mara

What's the question again, Amit? I'm sorry.

Amit Sharma - BMO Capital Markets U.S.

Sorry, I'm saying that you’re talking about total shareholder return given the strong cash flow, is dividend part of that equation as well?

Shaun P. Mara

I think in the future, we'll talk through that. I think right now, we're working through the details of it.

Operator

Next we'll go to Matthew Grainger with Morgan Stanley.

Matthew C. Grainger - Morgan Stanley, Research Division

Just wanted to ask first about retail pricing dynamics during the fourth quarter and into January as we saw Class I Mover push up to relatively high levels. Did you see anything in terms of retail margins that suggest a greater willingness short term to sacrifice margin on their part?

Gregg A. Tanner

No, we have seen nothing. In fact, it's been interesting to see that the category actually improved in the fourth quarter with increased retail pricing. So we have seen no activity to tell us that we should have a negative impact to that.

Matthew C. Grainger - Morgan Stanley, Research Division

Okay. That's great. And just one quick follow-up. Just the interest expense guidance that you provided of $115 million, just to clarify, is that x WhiteWave and does that include the recognition of swap losses?

Shaun P. Mara

It excludes WhiteWave and does not include swap losses. [indiscernible] It's based on where we think the cash flow will be during the year.

Operator

[Operator Instructions] And next, we will go to Alexia Howard with Sanford Bernstein.

Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division

Can I maybe just follow-up on this question about the retailer environment? I'm sorry to push the point again, but, clearly, in that particular region where you lost the volume, you weren't the low-cost producer in that particular area. What's to stop other retailers in that region from switching suppliers if there's someone else that is able to supply that retailer through lower costs? I'm just trying to figure out whether this is the beginning of the same kind of I guess, renegotiation of contract that started in late 2009 or whether this really was an isolated incident that really is not likely to be repeated elsewhere.

Gregg A. Tanner

Well, I don't think that you can draw the conclusion that we were not the low-cost bidder mainly because this was set up as a regional bid and there was strategic decisions that were made by the customer to try to segment their business further. So I wouldn't -- I wouldn't automatically assume that where we lost the volume, that we were not the low-cost bidder. What I would also tell you is that if you just look at the historical rates of bids that have been coming out, we're not seeing any increased activity that would tell us that this thing is going back to the 2009 scenario. Beyond that, we have seen nothing that -- because I think the retailers played a fairly significant role in what happened in 2009. And again, we've see none of that activity. So I guess, you can never say never, but we're not seeing anything that would indicate that's the case.

Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division

That's great. And maybe one quick follow-up. That was really helpful. On the outlook for commodity cost inflation across milk and diesel and resin prices, how do you think -- see things shaping up during the course of this year?

Gregg A. Tanner

Well, as we've said in the prepared remarks, I think from a Class I perspective, we expect it to be relatively benign. It will be higher than 2012, but we don't see any significant ups or downs as we look to it. Now, will caveat that with that's all based that we will have an average corn crop this year and that we don't have a second drought like we did in 2012. So from a Class I perspective, I'm relatively comfortable, especially with the first 6 months of the year, that with the pricing we're seeing today, is about what we'll see through the first 6 months, and we don't anticipate it to change dramatically in the back half. As far as the other basket of commodities, we're not seeing a lot. They're all about on their 5-year averages, and as far as fuel and energy, resin, we don't really see any inflationary factors there. And it built a little into our plans.

Operator

And next we'll go to Judy Hong with Goldman Sachs.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

I guess I just wanted to clarify on the corporate expense and interest expense sort of on going-forward numbers. So corporate expenses, based on the pro forma adjustments and your guidance looks like it's probably around like $160 million or $170 million for 2013 and I think that implies that only a modest amount went with Morningstar. And I just wanted to see if there's a big opportunity to kind of take the stranded cost down on the corporate expense side. And then at the same time, the interest expense line, it does imply that your debt cost still is pretty high. So is there opportunity to refi some of those high-cost debt to get the lower interest expenses going forward?

Shaun P. Mara

Judy, take a look, first of all, at corporate expenses. The '13 number you should be thinking about is probably $140 million to $150 million. That's about what we have in our guidance that we gave. We still think there's another $20 million to $30 million in stranded cost there, as we think about the Morningstar and WhiteWave businesses moving out. With that, we're going to have a hard time getting to that until the CSAs that Gregg mentioned are over, which is towards the end of this year, beginning of next year. So as you think about an ongoing number, it's probably $110 million to $125 million but for this year, it's $140 million to $150 million. As you look at the interest expense, the interest expense this year is basically our bonds, effectively ascribing the incremental interest expense or the high-interest expense out there overall. So we have the opportunity to re-look at that and some of that is callable. The 9.875 is actually callable against 2014 but what you're seeing is really the fact that, that number or the debt number as such driven by the bonds is driving up the interest expense number as a rate.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Okay. Got it. And then, I just wanted to get clarification as to the comment about the cost savings, this $80 million kind of an ongoing cost reduction and then you said the capacity -- the plant closures driving another 50% on top of that and then, in addition, there's a corporate expense coming down over time. So if you look out sort of 2014 and '15, it looks like those 3 components are likely to drive much meaningful growth versus kind of the mid-single-digit operating profit guidance that you've given on FDD. Is there something that I'm missing just kind of on that math?

Gregg A. Tanner

I don't think there's anything you're missing in the math. I mean, it's consistent with what we had shared with you earlier. So I would tell you that I think you've got at least the 2013 piece and that will ramp up in 2014 as we get the full-year benefits of many of the closures and additional closures in '14.

Shaun P. Mara

Just to clarify, Judy, the 50% more is not just the plant closures, there's other things in there in distribution routes, as well as some SG&A. So those are all inclusive of that number.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Okay. So run rate cost savings in 2014 still is $120 million?

Shaun P. Mara

Run rate will probably be higher than that, actually, if you think through the -- when we're going to get the savings. But, yes, the number for '12 was -- I'm sorry, '13 will be more close to $120 million.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Right. And then it ramps up again in '14?

Shaun P. Mara

Yes.

Shaun P. Mara

It's a full-year benefit. Yes.

Operator

And next, we'll go to Ryan Oksenhendler with Bank of America.

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

Can you just clarify, I guess, on the cost saving side, I guess, what's the net number? How much is it going to drop to the bottom line in '13 and '14, because that $120 million -- $80 million to $120 million number is a pretty big number on your new adjusted base of $257 million of operating profit.

Chris Bellairs

This is Chris. Good question. So the amount of cost savings that's going to drop is embedded in our guidance. Some the cost savings will drop some of it is to offset inflation. So the savings that we will see in 2013, similar to the way we've experienced the same levels of cost savings in 2012, in 2011, in 2010. Kind of going back on our history on this program over the past several years, we feel we have very good performance on the cost savings and some of some of it drops to the bottom line and some of it goes to offset inflation and other, but the total amount for 2013 that you're seeing is included in our guidance that we gave today.

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

Okay. And then in terms of the CapEx number going forward, is the '13 number -- is that -- how much of that is maintenance versus the spending you have to do on the cost savings and, I guess, is that a good run rate going forward or might that come down over time?

Chris Bellairs

The go-forward number is about $125 million is what we think it's going to be. I think you get a little bit higher than that in '13 and possibly, '14 but the ongoing rate of CapEx, we think is about $125 million.

Gregg A. Tanner

I'm sorry, I may add a little more color to that. If you -- in normal circumstances, about 40% of our GAAP spend would be maintenance spend. Obviously, as we take additional facilities out, that maintenance spend will come down accordingly.

Shaun P. Mara

And one more point, I guess, Ryan, on the cost savings we talked about, I mean, you say how much drops to the bottom line, remember, the volumes are down a little bit too, so it’s going to partially offset that. So it's kind of hard to say how much actually hit the bottom line but we are ascribing towards the $120 million number for '13.

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

Great. And then just lastly, in terms of free cash flow for '13, and maybe '14 in that matter, what are those numbers expected to be? Because I think I calculated maybe '13 could be $100 million and what will that be used towards?

Shaun P. Mara

I think if you look at '13, there's a lot of activity that's going be involved from a cash standpoint of the separation of the businesses and everything else. But if you exclude some of the onetime numbers there, we think $75 million to $100 million for '13. There's a high level of capital there, as we talked about already. If you basically look to the future, it's probably $100 million to $150 million overall. And then in terms of what we're going to do with the cash, I think we have more work to do on that and come back in the next couple of calls on that one.

Operator

And next we'll go to Eric Katzman with Deutsche Bank.

Eric R. Katzman - Deutsche Bank AG, Research Division

I guess a lot of my questions have actually been asked, but to follow-up on the free cash flow question, I guess, obviously, this is a U.S.-based company with somewhat more limited growth prospects just inherently. I guess, why aren't you at the stage, given what you know about your share position and the general free cash flow generation, why aren't you in a position today to give us a little bit more guidance as to what your preference is in terms of share repurchase versus dividends? I mean, again, given the business and being at 2.5x EBITDA, it's not like debt reduction is a -- would seem to be much of a priority.

Shaun P. Mara

I think, Eric, one thing you've got to think about, we've talked about this share retention that we have and the monetization of that. We've got to figure that piece out as we kind of go through the next 6 months and then from there, to kind of decide what we want to do from a standpoint of what use of cash are. We want to make the balance sheet a strength for Dean Foods. I think we've progressed towards that with all the work we've done on the IPO as well as the Morningstar sale and that's going to continue through this monetization of retained shares. So we will come back to that and we'll have a little more clarity probably, either in the -- probably more in the second quarter call, maybe the first quarter call. We also have to figure out the bonds, what we want to do with that and what's the payback in those things are. There's a lot of moving pieces still on this, and that's why we don't have a clear answer on it at this point in time.

Eric R. Katzman - Deutsche Bank AG, Research Division

So the monetization, so the -- I thought that when you listed less than 20%, that the tax-free ruling was given so that you could spin-out the rest and not sell a portion? I mean, it sounds like that's changed or my understanding is incorrect, because wouldn't the -- if you decided to, let's say, hold 19% of WhiteWave and then sell it, wouldn't that be a -- would that be a taxable event and, therefore, the after-tax proceeds of what you sell would be less than they otherwise would be?

Gregg L. Engles

Eric, this is Gregg Engles. Let me take the question. We structured this deal, I think, in a way that gave Dean Foods a tremendous amount of flexibility. So you'll recall on the WhiteWave IPO, we established a high-low vote structure that allowed us to meet the requirement of distributing 80% of the vote, which is what's required under our tax ruling, to our shareholders but retained for Dean more than 20% of the net proceeds on a cash free basis. So, Dean is retaining 34 million and change in terms of shares of WhiteWave that it has a lot of flexibility with. It can ultimately distribute those to its shareholders again, and a second distribution on a tax-free basis, or it can sell all of them or part of them, again, on a tax-free basis and retain the capital. So Dean has got some things it's got to figure out in terms of what it ultimately wants its balance sheet to look like and that will be an important part of determining, first of all, what it's going to do with the bonds as they become callable or as they mature. So, the 2018 bonds become callable at 1/2 of the coupon, so 4 and -- 4.9% or something like that at the end of 2014. When you do the math on that, you'll find that it is -- provides a tremendous interest expense reduction opportunity for Dean Foods beyond the 2014 time horizon. And then the 7% bonds that Dean has outstanding, the $500 million of bonds, mature midyear 2016. So Dean has got to figure out all of that because it's going to have to refinance effectively those bonds to capture the interest rate savings implied in either refinancing them into additional bonds or into the bank market. So there are a bunch of moving pieces before we get the dividend policy. But I would say I think it will all happen relatively quickly over the next few quarters, as Shaun said.

Shaun P. Mara

The other point I will make, Eric, on that is we received, as Greg said in the script, that we received we our private letter ruling earlier this week or late last week and it was specifically called out in there. So, this will be a tax -- if we decide to monetize it, it will be a tax-free piece of that.

Eric R. Katzman - Deutsche Bank AG, Research Division

So I guess, just a last one, but back to, I guess, either Gregg. So if you're doing roughly, let's call it, $100 million of free cash flow and the implied value of Dean's shares today, given WhiteWave's weakness, is -- I mean, I guess that works out to about 13% free cash flow yield but that -- it sounds like that should only accelerate because you're going to make a decision on the -- whether you monetize it, the remaining WhiteWave asset, or cut cost or reduce the interest expense et cetera. So, I mean, it seems like you would have a fair amount of flexibility. Is it as to what you do to reward shareholders? But that sounds more like, with all these moving parts, that it's like a 2014 event. Is that a fair description?

Gregg L. Engles

Yes, I think what the policy will be will probably be determined in the back half of 2013. Your supposition that the cash flows only get better here, I think, is correct. As we redeemed, ultimately, these 2014 bonds, interest expense is going to go down close to $40 million just by virtue of getting rid of those bonds. So the cash flow of Dean is going to go up meaningfully over time, the interest burden will go down meaningfully over the next several quarters, which should give Dean a tremendous amount of flexibility as it thinks about how to return value to its shareholders.

Operator

And our next question is from Farha Aslam with Stephens, Inc.

Farha Aslam - Stephens Inc., Research Division

Just a follow-up on the base business, could you just share with us in your fluid milk business, what portion is private label and what portion is branded? Roughly?

Gregg A. Tanner

Yes, it's about 30% to 35%.

Shaun P. Mara

Is branded.

Gregg A. Tanner

Is branded, and the rest is private label.

Shaun P. Mara

Which has been relatively consistent over the last couple of quarters.

Gregg A. Tanner

[indiscernible] about that or actually, our branded share has actually increased over the last, almost 2 years. I mean, we're -- our branded share is as high now as it's been since 2010.

Farha Aslam - Stephens Inc., Research Division

And so on that branded business, are margins significantly better versus private label and do you think now, your private label has stabilized after this share loss?

Gregg A. Tanner

It's really hard to say. I would -- I believe that our branded business is in good shape. I think we've got the pricing that we need as an organization, and I think our private label business is -- I mean, it just hasn't changed a lot over the last -- as far as mix, over the last, probably 4, 5 years.

Farha Aslam - Stephens Inc., Research Division

Okay. And then just a final question. Do you think -- since the issue wasn't that you were not the low-cost producer for this contract, is it that your competitors are willing to take a lower return than you are and do you think that's going to impact that private label portion going forward? Do you think as you cycle into more kind of situations where you have RFPs that you are going to be able to meet the pricing required to win the business with the return hurdles you have?

Gregg A. Tanner

Yes. I mean, I think the -- the one clarification I would provide you is we are confident that we are the low-cost producer, and I would also tell you that doesn't necessarily mean we will be the low-cost bidder in there, that there's a very clear differentiation there. So I think from where we're at, we're going to continue to drive our competitive advantage from a cost perspective, which I think, gives us continued flexibility to be competitive in any environment that we're going to bid.

Shaun P. Mara

And we get the RFPs basically all the time...

Gregg A. Tanner

It's a normal part of the business.

Shaun P. Mara

Go back to the last couple of years, as Gregg said, we've won more volume, certainly over the last couple of years and this was like, arguably, the exception.

Farha Aslam - Stephens Inc., Research Division

Okay. And what was different -- sorry, this is the last question. What do you think was different about this RFP versus all the others that you faced?

Gregg A. Tanner

I think one of the things is, is that there was a strategic shift by the customer that they were not looking for a national bid. So they wanted to break this down regionally and locally by bidding. We looked at it and kind of pooled different bids together regionally to make sure we were doing what we needed to do to have the price discipline that we expected for our shareholders. And I think they -- we still maintain a significant business with that customer, and I would -- we want to continue to service them as effectively as possible. I mean...

Operator

And our next question is from David Palmer with UBS.

David Palmer - UBS Investment Bank, Research Division

Question on scale and M&A. Recently, a couple of our industry friends have wondered aloud if Dean could even go further with some of the breaking up of the company. Essentially, the thinking is that the scale advantages have been limited for FDD and the dreams of synergies across the dairies, particularly as it goes across regions and nationwide, have dimmed, therefore, it makes sense to break up FDD, essentially sell pieces to regional players or private equity. Would there be any merit to such an idea or perhaps are there scale advantages or strategic value that Dean has from having a nationwide scale that we may not be seeing?

Gregg A. Tanner

I would first tell you that I don't think there's any value in breaking it apart. I think there is significantly more value in having a national network and especially in an environment where you've got a consolidating retail environment. So I would tell you that I don't see the value. I mean, we constantly look at alternatives to create value and -- but that is -- that's one that I just don't believe would be -- would create a significant amount of value.

Shaun P. Mara

And there's likely a pretty significant tax burden with that if -- to execute a strategy like that so we'd have to look at that in detail before we'd do anything like that.

Chris Bellairs

If you look at our track record of cost and productivity over the past couple of years, I'd suggest that a large portion of it is due to scale advantage and to the advantages our network provides. So I think probably, the analysis suggests the opposite.

Operator

And our next question is from Robert Moskow with Crédit Suisse.

Robert Moskow - Crédit Suisse AG, Research Division

I thought over the last couple of years, one of the consequences of taking market share and getting more private label business and being aggressive in the bidding would be a positive for the industry, because it might push some of the smaller players to exit the industry. And you yourselves have said there's probably 25% to 30% overcapacity. But I guess what I'm seeing today is that Dean is cutting back. Dean is the one cutting back and accelerating its plans to cut back, which I think is a positive for supply and demand, but I'm just wondering, if -- have you seen any evidence over the past couple of years, if you really look back, that your competitors have reduced capacity as well?

Gregg A. Tanner

I would tell you that it has not had the impact that, I guess, I would've assumed as well. We have not seen a lot of capacity come out of the industry. I think from our perspective, I think in many cases, as we said in our prepared remarks, I think we have a number of individual facilities or a limited number of facilities that don't give them opportunities. So it is not a matter of increasing their asset utilization, it is a matter of closing the door. And so it limits their ability to reduce their cost structure, where I think that's what our network provides us that nobody else has.

Shaun P. Mara

You'll recall how fragmented the industry is. So if you're a 1-plant operation, reducing capacity means exiting the industry. Or if you're a 2-plant operation, that lumpiness makes it hard for some of our competitors to do the kind of things that we can do.

Robert Moskow - Crédit Suisse AG, Research Division

Right. How much capacity do you think you've reduced in the last couple of years from your own network?

Gregg A. Tanner

Yes, I mean, we've taken out probably 10 to 12 facilities and that probably translates to 10% to 15%.

Shaun P. Mara

Equal amount of distribution -- equal amount of distribution capacity, so we're always optimizing in our distribution network as well. So as we optimize the production footprint, we do the same with distribution.

Robert Moskow - Crédit Suisse AG, Research Division

And then you have another 10% to 15% to go?

Gregg A. Tanner

Yes.

Operator

Next, we'll go to John Baumgartner with Wells Fargo.

John J. Baumgartner - Wells Fargo Securities, LLC, Research Division

Thinking about the consolidation differently, now that leverage has come down, how do you view the opportunities to go out and effect more role of consolidation, particularly in areas where you're underpenetrated across the U.S.? Is that an interest going forward?

Gregg A. Tanner

It's not something that's on our radar over the near-term at all.

John J. Baumgartner - Wells Fargo Securities, LLC, Research Division

Okay. And, Gregg, just a follow-up, thinking outside the 4 walls of the plants as you reduce facilities, thinking about the G&A expenses coming down and even opportunities maybe, to reduce the overload or premiums over time, is there any sources of cost outside the plant closure that you could hypothetically get at over the next few years?

Gregg A. Tanner

I mean, I think you always have the opportunity to continue to look at the milk procurement side. And I think we continue to look at that and see whether or not there is a need for us to do more independent milk or not.

Operator

And we have time for 1 additional question. We'll go to Akshay Jagdale with KeyBanc Capital Markets.

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

I just wanted to ask about margins. On the FDD business, you talk a lot about gallons and profit per gallon. I'm looking at your guidance and on volume and just -- I'm getting to profit per gallon, EBIT per gallon around $0.14. Historically, I believe it had been around $0.20. You're talking about cost savings of $0.04 to $0.05 a gallon. Any reason why the historical number doesn't hold anymore? That's question one. And the second question is, what impact does moves in commodity prices, especially milk, have on your ability to increase EBIT at a mid-single rate over time?

Shaun P. Mara

I'm sorry, Akshay, could you ask the second part of the question again. I apologize.

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Yes, sorry. The second part was milk prices have been extremely volatile and that may or may not be the norm, but can you just help us understand the sensitivity for EBIT and the FDD? Because there's so many moving parts, with your cost savings, I'm sure that sensitivity changes. So with your ability to grow at 5%, your EBIT, how is that impacted by changes in milk prices?

Shaun P. Mara

Yes, I'll take the second one first and it's a hard question to answer because, as you said, there are a number of moving parts. So in addition to kind of the simple sensitivity model around a 5% or a 10% increase or decrease in the cost of Class I milk, would yield this kind of change in EBIT, there's also price thresholds to take into account. So if the change is merely from $4.49 to $4.89, that might have a different result on the business than if you break a $4 or $5 barrier, for example. Additionally, we do have a decent piece of our business that is on a fixed bid. Many of our schools are on fixed bids. So as the price of milk fluctuates up or down, you wouldn't see the same impact there as you would in the business that's more formulaic. So it's not easy for us to really translate that change. And obviously, given, for example, on the school business, given the seasonality of that business, it would dramatically affect the answer based on when you saw that change in Class I milk. So tough for us to put a number out there that you can use and rely on kind of day in and day out as being the perfect sensitivity to Class I milk prices. On your first question, the number that you're calculating there, the $0.20 to the $0.14, there's no doubt that the FDD's EBIT per gallon has come down over time. We think we've done a very good job over the past 5 quarters of sort of bringing that number back up again. And where we're at for guidance right now for both Q1 and for 2013, we think we've got the profit per gallon back to levels that are good for us and given the cost savings program we've got in place and the pricing discipline that we're always working on, we think that the EBIT per gallon in 2014 -- 2013 and '14 is headed in the right direction as well.

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

But can you get back to historical levels on the EBIT per gallon, as it was the real question? Because at your guidance longer-term doesn't seem to imply that you're getting there.

Shaun P. Mara

Yes, I think that $0.20 number that you quoted earlier is a historical number that would be a tall order for us to get back to in the short run.

Operator

And this concludes today's question-and-answer session. I would like to turn the call back over to Mr. Tanner.

Gregg A. Tanner

Great. Thank you all again for joining us for the call this morning. I look forward to seeing many of you over the next few months, and we appreciate very much your continued interest in Dean Foods.

Operator

And this concludes today's presentation. We thank you for your participation.

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