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Executives

Tim Smith – VP, IR

Gregg Tanner – CEO

Chris Bellairs – EVP and CFO

Analysts

Judy Hong – Goldman Sachs

Christopher Growe – Stifel, Nicolaus & Co.

Alexia Howard – Sanford C. Bernstein

Eric Katzman – Deutsche Bank

Farha Aslam – Stephens Inc.

Amit Sharma – BMO Capital Markets

Matthew Grainger – Morgan Stanley

Ryan Oksenhendler – Bank of America Merrill Lynch

John Baumgartner – Wells Fargo Securities, LLC

Dean Foods Company (DF) Q4 2013 Earnings Conference Call February 11, 2014 9:00 AM ET

Operator

Good morning and welcome to the Dean Foods Company Fourth Quarter 2013 Earnings and Year-End Conference Call. Please note that today’s call is being recorded and is also being broadcast live over the Internet on the Dean Foods corporate website. This broadcast is property of Dean Foods. Any redistribution retransmission or rebroadcast of this call in any form without the express written consent of the company is strictly prohibited.

At this time, I would like to turn the call over for opening remarks to the Vice President of Investor Relations, Mr. Tim Smith. Please go ahead sir.

Tim Smith

Thank you Glenn and good morning everyone. Thank you for joining us on our fourth quarter and full year 2013 earnings conference call. This morning we issued an earnings press release which is available on our website at deanfoods.com. The press release is also filed as an exhibit to our Form 8-K which is available at SEC website at sec.gov.

A slide presentation which accompanies today’s prepared remarks is also available during this call at the Dean Food’s website. A replay of today’s call along with the slide presentation will be available on our website beginning this afternoon.

Throughout today’s call the earnings per share, operating income, interest expense, and free cash flow information that will be provided are from continuing operations and have been adjusted to exclude expense and other gains or losses related to facility closings, reorganizations and realignments, asset write-downs, litigation matters, integration and separation cost and other non-recurring items including the spin-off and disposition of our remaining investment in WhiteWave of common stock, the Morningstar divestiture and our early retirement of debt.

In additional certain pro forma adjustments were made to our 2012 results to reflect transactions between our former segments under our current commercial agreement that went into effect upon completion of the WhiteWave IPO in October 2012 rather than under the intercompany agreements that were in effect throughout the majority of 2012.

We would like to advice you that all forward-looking statements made on today’s call are intended to fall within the Safe Harbor Provision 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, network optimization plans, dairy commodity pricing, the payment of any future dividend, anticipated share repurchases, and various other aspects of our business.

These statements involve risks and uncertainties that may cause actual results to differ materially from 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 Chris Bellairs, our Chief Financial Officer. Gregg will start off with a review of our fourth quarter and full year performance Chris will then offer some additional perspective on our financial results before turning the call back to Greg 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 Gregg for his opening remarks. Gregg?

Gregg Tanner

Thank you Tim and good morning everyone. Thanks for joining us on the call today. This morning we reported fourth quarter results that were in line with our previously articulated guidance range. For the quarter we reported $0.18 in adjusted diluted earnings per share despite an increase in the challenging business environment.

I’ll give you more detail on the fourth quarter results shortly but first I’d like to take a moment to review the full year results we’ve achieved against our strategic initiatives to drive our success and create shareholder value. During 2013, we successfully achieved the separation of our Morningstar and WhiteWave business from Dean. These activities allowed us to deliver over 2 billion of value to our shareholders while creating a more focused and deleveraged Dean Foods.

On an all cash netted basis, our year-end leverage ratio was 2.21 times net debt-to-EBITDA, a significant decline from 3.52 times at the end of 2012. In late 2013, our Board of Directors adopted a cash dividend policy with the expectation to begin paying a $0.07 quarterly dividend in the first quarter of 2014 according to an annual payment of $0.28 per share. Additionally our board approved an increase in amount available for share repurchases of our outstanding common stock up to a total of $300 million.

We have also made strong progress against the accelerated cost reduction initiatives to better offsetting inflation in additional to helping offset the impact of the partial loss of private label business with a significant customer and continued category softness. To that end, we executed eight plant closures during 2013. The closures will help improve the efficiency of our remaining network and extend our low cost competitive advantage.

During the fourth quarter we also completed a successful cash tender offer of $400 million of our 2018 and 2016 notes. $376 million or 94% of the nine and three quarters 2018 notes were tendered and repurchased by us. With the balance repurchase from tendered 7% 2016 notes. As a result of the tender offer we estimate approximately $36 million in annual interest savings or $22 million post tax beginning in 2014. So overall we’ve made clear progress in 2013 on several key fronts to strengthen both our financial and our competitive position and to deliver value to our stockholders.

Before turning to our results I wanted also take a moment to update you on the increasingly challenging and unprecedented dairy commodity landscape. Looking back on 2013 particularly over the second half it was a very challenging year as domestic raw milk prices continued to be meaningfully impacted by global developments in ways that we had not seen previously.

Through November the U.S. has exported over 1.1 billion pails of powder which represents a 24% increase compared to last year’s record year. At current levels powder prices are at their highest levels since the fall of 2007.

Total U.S. cheese export through November have increased 20% versus prior year to 629 million pounds. Recently the domestic cheese market has experienced dramatic price inflation at the CME as the increased exports, decreased imports and higher milk utilization in class four butter and powder products have led to tightness in the cheese market.

At current levels CME’s spot cheese prices have been fluctuating near or above all time high. All major U.S. dairy product export volumes have experienced meaningful year-over-year increases in 2013 with China leading the way in terms of import demand, increasing their total dairy imports by 42% in 2013, with most of this increase in the form of whole milk powder.

A significant constriction in Chinese milk production coupled with rising demand for dairy based protein throughout Asia ultimately caused the dramatic increase in Asian demand for imported dairy commodity dairy products. Since the melamine crisis China has struggled to achieve desired growth in its own milk supply, weather disease and regulatory changes in China have conspired to create a full blown supply challenge in 2013.

While Chinese production data is opaque industry analysts have estimated Chinese milk production to be down anywhere from 5% to 15% compared to year ago levels with most of the trade estimates in the 5% to 10% range. Chinese milk production is not expected to fully recover in 2014 as these are issues that cannot be quickly reversed. Thus we expect China to remain a heavy buyer of imported dairy commodity products in 2014 keeping global raw milk prices elevated.

While strong export demand is not a new development its magnitude and intensity had been under estimated. We believe that in order for domestic raw milk prices to experience a noticeable decline in the second half of 2014 there will need to be a significant supply response from both the U.S. and the European Union.

It is our belief that the U.S. response will need to be driven more by increased milk for cow and not from a significant whole herd expansion in 2014 especially in the first half of the year. Overall we expect raw milk prices to remain elevated across all categories throughout 2014 especially in the first half.

Now let me turn to the operating results for the quarter. On an adjusted basis we earned $0.18 per diluted share, a 22% decline from the year ago period and in line with our prior guidance of $0.17 to $0.23 per diluted share. For the full year adjusted earnings per diluted share of $0.86 were 12% above 2012 pro-forma adjusted earnings. Fourth quarter adjusted operating income of $48 million compares to $62 million in pro forma adjusted results for the fourth quarter of 2012, a 22% year-over-year decrease.

Full year 2013 adjusted operating income of $228 million was 11% below year ago levels. As I said earlier Q4 results were in-line with our previous guidance despite a challenging environment. Fluid milk volume to remain soft, raw milk cost continue to increase sequentially and transitory cost production and distribution associated with plant closures and loss of volumes continue to be higher.

We expect these headwinds will continue into the first half of 2014. The partial loss of private label business combined with general category weakness resulted in total volumes of 699 million gallons in the fourth quarter of 2013. This represents an 8% decline from 760 million gallons in the fourth quarter of 2012. On a full year basis total volumes declined 7% to approximately 2.8 billion gallons. However this does not take into account the full impact of the RFP driven volume loss.

Within the fluid milk specifically category volumes declined approximately 2.2% for the quarter on an unadjusted basis which does not normalize for the number and quality of days between periods.

On the same unadjusted basis our fluid milk volumes declined 9%. This quarter’s volumes continue to reflect the full negative impact of the RFP driven volume loss. But the recent wins we discussed on our last call are beginning to materialize in our volumes and share performance.

Excluding the impact of the RFP and another customer’s decision to vertically integrate last year our fluid note volumes declined 0.6% in the quarter significantly better than the overall category and improvement from last year’s comparable 1.7% decline.

On a channel basis we’re still down year-over-year we saw approximately a 6% sequential improvement in the large format channel for the quarter as a result of our recent customer wins. Year-over-year weakness in the large format channel continues to be partially offset by strengthen the small format channel where we experienced the year-over-year increase of approximately 5%.

This quarter marks the 10th consecutive quarter of growth for Dean Foods in the rapidly expanding dollar channel. We continue to focus on strengthening our volumes and have achieved new incremental wins in December and January. The majority of these new wins will come online late in the first quarter and equate to an additional 25 million gallons on an annualized basis.

On a full year basis our total note volumes have declined 7% which is consistent with our prior guidance. However, we continue to expect our unadjusted volumes to underperform the broader industry through the first half of 2014 due to the ongoing year-over-year impact of the last private label RFP business in third quarter of 2013.

Our share of the fluid milk category was 35.7% in the fourth quarter. This represents a 0.8% increase from the prior quarter as we begin to benefit from new volume wins and continued strength beyond large format channels.

This share gain is among the largest we ever recorded in recent years. In terms of our branded versus private label white milk mix we ended the year at approximately 36% branded which was unchanged versus 2012. However Dean’s share of branded white milk at retail has increased for three consecutive quarters and on a full year basis we are approximately 110 basis points better than the prior year.

Our national flavored milk brand, TruMoo lapped a strong 8% growth rate from calendar year 2012. In 2013 share growth was flat and volume was down 2% consistent with the overall category decline. As we look to 2014 we will continue to invest behind this brand at leadership levels.

We expect to support the business with seasonal promotions and flavors such as choco marshmallow which is being sold nationally during the month of February. We also plan to continue to find new ways to innovate and TruMoo into new segments and reach consumers. We are pleased with the results of our regional launch of TruMoo protein which has been 100% incremental to the base business and has allowed the brand to enter the emerging applied performance and workout recovery segments and the national launch of TruMoo in Tetra pack a shelf-stable flavored milk has allowed TruMoo to enter lunch boxes throughout the U.S.

Turning to pricing retailers continue to price private label milk at levels consistent with historical norms with the margin over milk as the spread between class I Mover and retail price of private label gallons at approximately $1.50 per gallon in Q4 compared $1.52 per gallon in the previous quarter and $1.49 per gallon in Q4 of 2012. Average price gaps between our brands and private label in Q4 were consistent with Q3 but slightly below year ago levels.

Since August class I raw milk prices have continued to increase every month ending the year at $20.37 per hundredweight. On an average the fourth quarter class I price was 5% higher than the third quarter but 2% below year ago levels. On a full year basis the class I average price of $18.84 was 8% higher than 2012. As of February the class I price has increased an additional 8% from December to an all-time high of $22.02 per hundredweight.

We fully anticipate an additional increase in March to just under $24 per hundredweight which would be another all-time record high for class I. Closing just below $24 per hundredweight would represent 17% increase from December’s class I price and 34% increase versus March, 2013.

As I indicated in my introductory remarks strong international demand for whole milk powder has helped keep domestic raw milk prices stunningly high. We expect this to continue through at least the first half of 2014 where first quarter average class I prices now expected to be meaningfully above our previous expectations to top $22 per hundredweight.

Based on current class I forecast we anticipate the first half of 2014 could exceed the higher six month period average ever previously achieved which occurred between July 2007 and January 2008. But we remain watchful of global supply and demand dynamics as we look ahead to 2014 assuming normal weather patterns we continue to believe solid global supply growth will ultimately lead to declining raw milk prices in the second half of 2014 or be it at higher levels than we previously thought.

These are unusual little high raw milk prices are undeniable headwind for our business. Our price pasture mechanics do provide relief with some portion of the expected $400 million to $600 million year-over-year increase in cost of goods sold due to milk inflation will be a drag on 2014 operating income growth.

For perspective every 1% of price pasture inefficiency would result in 2% decrease in year-over-year operating income growth. This inflation will be particularly noticeable in the first half of 2014. A major corner stone of our efficiency efforts in 2013 and ‘14 includes the plant closure of 10% to 15% of our plant network or 8 to 12 plants by mid-2014.

As part of this initiative and as I noted earlier we closed 8 facilities since we began ramping up activities late in 2012. We have strong momentum behind these initiatives and expect to increase savings into 2014 from plant closures and supply chain headcount reductions to help offset the volume deleverage associated with the loss business and the record high dairy commodity environment.

In 2013 supply chain headcount was reduced by approximately 7.5%. However with the full impact of the ROP volume declines and the associated accelerated plant closure activity in the back half of the year production cost declines like the declines in volumes resulting in higher per unit cost in the fourth quarter and lower overall growth profit.

Fourth quarter distribution cost declined $14 million on a year-over-year basis. However this 5% reduction is behind the rate of volume decline in the quarter leading to a temporary increase and per unit distribution cost. While closing manufacturing facilities drives production efficiencies these are partially offset by increased miles driven as products are shipped back into the area surrounding the closed facilities.

We believe the increase per unit production and distribution cost are temporary and that cost will come in line with volumes as we move past this recent period of accelerated plant closure activity. Hoping to offset this increased cost was $40 million reduction in SG&A cost in the fourth quarter from the year ago period. A major portion of the decrease was attributable to the reduction of incentive compensation expense related to 2013 financial performance that was below our targets.

As we have previously mentioned this decrease in incentive compensation in 2013 will become a $30 million headwind in 2014 as full year plans are reset. Overall, we had an exceptional year across quality, safety and service. Our distribution results continue to benefit from dramatically reduced rates across total recordable incidents and [dark rate].

As a result of the full impact of the volume loss due to the RFP and the associated transitory cost we reported a 22% year-over-year decrease in operating income. Operating income totaled $48 million for the quarter which is a decline of $14 million compared to the prior year.

As we look ahead to Q1 and into 2014 we continue to see difficult overlaps through the first half of the year but expect performance to improve as we reach the anniversary of the RFP driven volume loss, realize the full benefit of our cost and interest savings initiatives and accumulated additional new volume wins. However, we do remain concerned about the current health of the fresh milk category generally with volume weakness and commodity pressures as the primary issues.

Additionally with approximately 80% of supplemental nutrition assessment program or SNAP benefits spent in the dairy category we remain cautious about the impact of the recent 5% reduction in those benefits related to exploration of the 2009 American Recovery and Reinvestment Act.

That being said, we feel good about the actions we take to reduce our cost structure and better position the business to succeed despite the challenging marketplace.

Finally, before I turn the call over to Chris I wanted to make a few comments on the recently passed farm bill. Well there are some important changes made to US and our dairy farm policy, the immediate implications to our business are likely minimal. For example the legislation does not directly address dairy production pricing policy as it relates to federal orders so the way raw milk is priced doesn’t change.

Among the significant outcomes for us was that the final bill does not contain supply management provisions for dairy. As you might recall the proposed supply management provisions supported by the nation’s major dairy cooperatives in which we actively oppose would have resulted in the government controlling milk production. Our concern here was that this would lead to market distortions and artificially raise the price of raw milk.

Following enactment the US Department of Agriculture will commence the regulatory process to promulgate the necessary regulations that the bill specifies. This means we will not see any practical impact from the bill for several months and not likely before September 1st.

With the new farm bill in place this also means that of a dairy cliff is a thing of the past, at least until the next required farm bill reauthorization in five years. It’s been a long time coming for our final farm bill to be completed. While we are satisfied with the outcome we still have a long way to go towards modernizing an equated dairy regulatory system.

Now I’ll turn the call over to Chris for a more detailed review of the financial results. Chris?

Chris Bellairs

Thank you, Gregg, and good morning, everyone. I’ll walk through the Q4 and full year results, as well as review the balance sheet and cash flow performance.

Starting at the top of the P&L. As Gregg noted, total volumes declined 8% in the quarter. Although we are making progress in our cost-reduction initiatives, the transition of these volumes out of our network outpace the impact of our efforts and resulted in fixed cost deleverage within the quarter. This drove a Q4 year-over-year decline in adjusted gross profit of $67 million or 13%. Below the gross profit line total company operating expenses declined $54 million from the year ago period.

In distribution, lower volumes and continued cost productivity reduced expenses $14 million or 5% versus prior year, which lags our fourth quarter volume decline of 8%. However as Greg mentioned earlier, while facility closures drive production efficiencies they are partially offset by increased miles driven as products are shipped back in to the area surrounding the closed facilities.

Continued benefits from improved technology coupled with lower volumes have also allowed us to reduce both headcount and fuel usage. In 2013, distribution headcount was reduced by more than 6% while fuel gallons declined roughly 2 million gallons or 5%. While we are pleased with the progress we are making in headcount and fuel for example you can see that our reductions did lag the rate of volume contraction resulting in cost deleverage.

SG&A declined $40 million in large part due to reduced incentive compensation expense. Overall this resulted in operating income decline of $14 million or 22% for $48 million. Adjusted EBITDA for the fourth quarter were $88 million a 16% decline versus prior year.

Below the operating line interest expense decreased $7 million from the year ago period. This decrease is a result of significantly lower debt levels and a small benefit during the quarter from our successful late November repurchase of a portion of our higher coupon senior notes. This in combination with our normalized adjusted tax rate of 38% yielded Q4 adjusted net income of $17 million and adjusted diluted earnings per share of $0.18. On full year basis, gross profit declined 11%.

Operating expenses also declined 11% versus year ago levels driven by 5% decline in distribution cost and a 23% decline in SG&A aided by a significant decrease in incentive compensation. Excluding incentive compensation and advertising SG&A cost declined $64 million or 13%. Most of our temporary support associated with the WhiteWave and Morningstar TSAs has ended and we are satisfied that we have removed the vast majority of the related stranded costs.

Driving operating cost leverage continues to be a primary focus going forward and key to offsetting the margin pressure in the business. Total operating income of $45 million declined in interest expense, coupled with a normalized adjusted 38% tax rate, translate into full year adjusted net income growth of 14% and 12% growth in adjusted diluted EPS to $0.86 for the year. For 2013, adjusted EBITDA was $389 million down 9% versus prior year adjust below our prior guidance range of $391 million to $400 million.

Turning now to the balance sheet and cash flow as of the end of the fourth quarter net debt outstanding was $881 million up from $671 million at the end of Q3. This increase was primarily related to a $57 million premium associated with our bond tender offer and a large tax payment related to the Morningstar divestiture.

On an all cash netted basis, leverage ratio was 2.21 times net debt to EBITDA, a significant decline from 3.52 times at the end of 2012. This sharp decline is primarily the result of the debt reduction driven by the proceeds from the Morningstar sales and the July disposition of our remaining investment in WhiteWave common stock, offset by non-recurring cash outlays associated with our separation activities including the Q2 through Q4 payments toward the tax bill associated with the gain on the Morningstar divestiture.

We will have one final tax payment associated with the Morningstar divestiture in Q1 which we estimate to be approximately $16 million. Our objective remains to maintain average leverage ratio below 2.5 times net funded debt EBITDA. Year-to-date net cash used in continuing operations was $331 million.

Capital expenditures totaled a 175 million resulting in free cash flow used in continuing operations of $506 million. Negative free cash flow in 2013 has primarily been driven by approximately $420 million in tax payment associated with the Morningstar sale.

The $31 million impact of moving the WhiteWave and Morningstar to external accounts receivable and accounts payable. The $28 million interest rate swap termination fee associated with our Morningstar sale driven debt reduction, approximately $32 million of transaction cost, tax payments of $21 million associated with certain obligations recognized upon completion of the WhiteWave spin-off and our $19 million litigation payment as well as other payment primarily associated with the separation of Morningstar and WhiteWave from our business.

On an adjusted basis, which excludes the Morningstar tax payment other one time uses of cash associated with our strategic activities this year, litigation payments from certain other items we have generated approximately $60 million in 2013 adjusted free cash flow. This is below our previous full year guidance which was towards the high end of $75 million to $100 million range.

The key driver behind this shortfall is two-fold. First, 2013 capital expenditures of $175 million were $10 million higher than the midpoints of our prior expectations. Second, in comparison to our prior forecast we experienced an unfavorable change in working capital of approximately $20 million which was driven by higher commodity prices during the fourth quarter and a slight miss on our cash conversion cycle forecast.

Despite this slight miss in forecast we did achieve a sequential improvement in our fourth quarter cash conversion cycle of approximately one day to 18 days. We continue to believe we’ll be able to substantially accelerate our free cash flow generation before dividend payments from this level over the coming years, through meaningful reductions in interest expense, and capital expenditures as well as operating income growth. With that I will now turn the call back to Gregg for some commentary on our 2014 outlook before opening the call to your questions. Gregg?

Gregg Tanner

Thank you, Chris. As I noted in my opening remarks, 2013 was a transformational year for Dean Foods. We completed the separation of our business unlocking substantial shareholder value and creating more focus in financially flexible Dean. Additionally we adopted our first ever dividend policy with the expectation to begin paying a $0.07 quarterly dividend from the first quarter of 2014. And we increased our available share repurchase authorization to a 300 million.

However, 2013 was not without these challenges for Dean Foods. First, we experienced an RFP driven volume loss in 2013. As a reminder, this loss volume transition out of Dean Foods primarily over the later part of second quarter with incremental albeit smaller transitions in July and September of 2013. Therefore, we will continue to experience couple relapse on a year-over-year basis till we reach the anniversary of this investment. Second, as a result of this RFP driven volume loss we implemented an aggressive plan to eliminate fixed cost and to close more capacity than what was represented by the loss volume. We were able to execute against our plans to expedite these efforts ending the year with the plan closures.

Third given the accelerated plan closure activity in the back half of the year, production and distribution cost lag the decline in volume resulting in higher per unit cost, we expect this will continue in the first half of 2014. Finally, all major U.S. dairy product export volumes have experienced meaningful year-over-year increases in 2014 causing significant increases in prices across the dairy commodity complex particularly over the back half of 2013.

Turning to the outlook for 2014, the following items will drive our 2014 earnings progression. First the consensus view of the dairy commodity outlook for 2014 appears to be significantly more challenging than previously expected as current dairy commodity prices have moved near or beyond all time high despite strong global production growth.

On our last call, we expressed the view that raw milk prices will begin to fall in the early part of 2014 before moderating and the rising slightly over the back half. However from my earlier comments we no longer believe that to be the case. Global demand continues to be very strong for imported dairy products despite continued year-over-year increases in milk production. We believe that current and expected imported demand levels we would need to see U.S. milk production grow at 2% to 3% coupled with supply growth in the EU, New Zealand and Australia in order for raw milk prices to begin to moderate in the back half of 2014.

As a comparable the U.S. experienced 0.7% increase in 2013 milk production with the USDA forecasting a 2.1% increase in 2014. As per the USDA’s December dairy goods markets and trade report milk production across the EU, New Zealand and Australia is currently expected to show strong year-over-year growth in 2014 at 1%, 5% and 3% respectively.

Milk production in Europe is increasing at accelerated levels due to good raw milk prices, mild weather and expanding herds in some countries. Also in April of 2015 EU milk quotas will seize to exist and some European countries are gearing up to significantly increase their milk production in both 2014 and 2015.

Second, as dairy commodities move up month after month our field teams aggressively pursue pricing actions to keep pace. However, as raw milk costs rise so does our cost of shrink. At current forecast of dairy commodity levels we expect shrink cost to be a headwind for us in 2014. Our continuous improvement organization and the rest of the organization is working hard with our field teams to continue to drive best practices in order to reduce our overall shrink percentage.

Third, the RFP driven volume losses and the associated margin pressures we experienced occurred primarily in late Q2 through early Q3. We will fully overlap those impacts until the second half of the year which will make for a very rough first half comparison particularly in Q1.

Fourth, because overall 2013 performance was meaningfully below our plan we significantly underplayed 2013 bonus targets. Our 2014 guidance assumes we will pay short term incentive at targeted levels. The higher level of incentive compensation is expected to be approximately a $30 million drag on our financial performance in 2014.

Finally, the fluid milk category finished the year with industry volumes down 2.2% in Q4 and we continue to keep a watchful eye on the impacts associated with our higher dairy commodity prices and the recent reduction in SNAP benefits. We are hopeful that our new volumes wins and increasing share gains will partially offset the asset deleverage soft category volumes create. However soft volumes coupled of inflation can negate some of the impacts of cost reduction efforts and make it harder to migrate these savings to the bottom line.

We also have numerous opportunities on the plus side. First, we appeared to have bottomed out in terms of our share position as we were able to increase our fluid milk category share in the fourth quarter by 0.8%. We are optimistic that we can continue to increase our share as we move through 2014 as we are off to a strong start given the new volume wins previously mentioned.

Second, we continue to have robust cost reduction efforts in place across all areas of our business. We will continue to focus on optimizing our supply chain and expect to achieve the high end of our initial goal of closing 8 to 12 plants in aggregate over the course of 2013 and 2014. To that end yesterday we announced an additional plant closure in Riverside, California which marks our ninth announced closure.

Third, under the leadership of Tony Brooks who joined in March of 2013 we are accelerating our cost productivity efforts within distribution as this represents approximately $1.2 billion cost bucket for Dean. Over the back half of 2013 Tony has realigned his organization and they have had strong momentum heading into 2014. Key focus areas will include but will not be limited to increasing our efforts on route efficiencies through updated KPI metrics and optimizing our third-party network to increase efficiency, allowing our flexibility in developing new products and launch in the market.

Additionally, we will also continue to focus on improving our routing optimization through dynamic dispatch routing, route optimization projects at branches and better managing our delivery frequencies. It’s going to be imperative that we continue to improve upon our cost to serve analytics to ensure that we are achieving an appropriate return on our fleet assets.

Fourth, with the completion of the separation of our business in 2013 we have substantially lower debt. In addition late in 2013 we successfully tendered for and retired $400 million of our high coupon notes. Therefore we expect to see a meaningful decline in our interest expense.

Taking all of these factors into account we expect full year adjusted earnings of $0.73 to $0.86 per diluted share or flat to slightly down from 2013. As indicated, we may from time to time be in the market repurchasing our shares but for EPS guidance purposes we have assumed the base line of zero share repurchases inn estimating our full year diluted share count of approximately 96 million shares.

Key 2014 assumptions and noteworthy items are as follows. Full year capital expenditures are expected to be $150 million to $175 million. This level of expenditure continues to be above what we believe our long term CapEx will be as we right size our network and increased asset efficiency.

Longer term we would expect CapEx to be roughly $125 million to $150 million per year which will help drive free cash flow and the opportunity to return value to shareholders. We expect total adjusted operating income to be between $175 million and $195 million. We expect 2014 adjusted EBITDA between $335 million and $355 million which assumes approximately $160 million of depreciation and amortization. We expect total interest expense of approximately $62 million to $64 million and a normalized adjusted tax rate of 38%.

Based upon the dairy commodity outlook we articulated today we expect our adjusted free cash flow before dividend payments to be at least $125 million. As you can tell from my full year commentary we expect the first half of 2014 to be particularly difficult as we battle the overlaps of the RFP-driven volume loss, spike in commodities and category declines that maybe worse than recent run rates. However as we lap the most difficult challenges of 2013 and this new business comes online and cost reduction efforts continue to take hold we expect results to strengthen in the back half and exceed 2013 performance in the third and fourth quarter.

We expect the first quarter will be the most difficult quarter of this year. We will be chasing record high class I raw milk prices with Q1 expected to achieve the highest quarterly average on record with margins forecasted price expected to be 17% above December level. We will continue to experience the full brunt of the RFP driven volume loss and we’ll continue to work through the associated transitory cost.

In addition, the first quarter of 2014 does not benefit from Easter as Easter falls into the second quarter this year. Finally, given the extremely cold weather across the large part of the U.S. we have experienced temporary milk volume losses and increased distribution cost. All in we expect first quarter adjusted diluted earnings per share to be approximately breakeven with $0.03 of potential risk or benefit implied.

In summary, we believe the market environment continues to be a difficult one where several factors continue to impact our earnings progression particularly early in the year. However later in the year we expect earnings to improve as we begin to overlap some difficult comparisons and the full benefit of our cost reduction efforts take hold.

We remain confident we are taking the right steps to build a strong foundation for future success and I would like to recognize and thank our employees for their hard work and commitment toward achieving that goal.

With that, I will ask the operator to open the call for your questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions). And your first question comes from the line of Judy Hong with Goldman Sachs.

Judy Hong – Goldman Sachs

Thank you. Good morning everyone.

Gregg Tanner

Good morning Judy.

Judy Hong – Goldman Sachs

Gregg, first I guess I just wanted to understand the class one mover pricing forecast that you have in your guidance and clearly the China export demand has ramped up. We’re also seeing the California drought condition in the U.S. so how much of that is factored into your guidance and the risks that the mover pricing goes even higher than what you’re forecasting for 2014?

Gregg Tanner

Well I would tell you that it’s the first half, second half scenario Judy, I would tell you that most of China and California is built into our forecast that we just shared with you and built into our numbers. As far as the second half of the year is probably the bigger risk for us. So if class one prices don’t start to come off in the second half of the year it would cause some risk for us.

Judy Hong – Goldman Sachs

Okay and then just on the volume side, I’m still trying to reconcile the fourth quarter volume just in to a lot of moving parts here as you point out if you look at it on a sequential basis it looks like the impact from RFP losses have moderated but then on the percentage basis the gap between your underlying versus the reported is actually larger than what we saw in the second and the third quarter. So can you just help us sort of understand sort of that gap and what happened in the fourth quarter in terms of the losses to your customer? Were there additional losses that actually impacted in the fourth quarter and then how much was the benefit from the new business wins?

Chris Bellairs

Yeah Judy I am not following the correlation that you made but if I look at our fourth quarter volumes we gained a significant amount of volume and in fact if you look at it taking the RFP out and take out the volume that we had from the customer who went vertical last fall you take those two out, we were down 1.7% in the third quarter versus the category and this fourth quarter we were down 0.6. So I would say that our volume is getting considerably better versus the market and there wasn’t really no major losses in fact I don’t know of any losses in the fourth quarter other than the category.

And the 80 basis points share gain on a full year basis it represents somewhere between 40 million and 50 million gallon annualized so the 80 basis points of the share gain in the quarter fairly represents a pretty stronger upward trend in gaining volume with new customers.

Judy Hong – Goldman Sachs

Okay maybe in terms of percentage differences, I was looking at that down 1.7% in the third quarter versus your reported numbers so if backed out what the RFP loss impact would have been something like 6% and in this quarter it looks something like a 9% I was trying to figure out why that would be a different quarter to quarter?

Chris Bellairs

We’ll have to look at that. I think the way we described it as Gregg said no incremental losses associated with Wal-Mart and actually strong momentum in other areas of the business the way Gregg described.

Gregg Tanner

I mean our volume is probably the thing that I’m feeling most confident about at this point and not cost.

Judy Hong – Goldman Sachs

Okay thank you.

Operator

And your next question comes from the line of Chris Growe with Stifel. Please proceed.

Christopher Growe – Stifel, Nicolaus & Co.

Can you hear me, okay.

Gregg Tanner

We can, Chris.

Christopher Growe – Stifel, Nicolaus & Co.

Okay thank you. I want to ask you two questions if I could. The first was to understand I think you made a mention of reducing your capacity beyond the level of volume loss to the RFP, did I hear it correctly in the call?

Chris Bellairs

Yes sir.

Christopher Growe – Stifel, Nicolaus & Co.

Okay so I just wanted to see if you could provide a little more color around the degree of cost savings coming through from closing facilities. I realize it’s in part offset by that fact that you have higher cost to serve in some of those areas. Can you give any more color on like how much cost savings were from plant holders but I mean how much of that was offset by increased cost to serve in area?

Chris Bellairs

Well I think if you look at it just on a net basis, and we’ll throw averages, which is always scary, when you start throwing averages around. But if you assume it was about somewhere in the $3 million or $5 million range per closing on a net basis, is usually what we would call most of our plant closures. So as we mentioned earlier we’re somewhere, we just announced our ninth closure our expectation is there will be additional closures as we go through the year 2014. Did that help Chris?

Christopher Growe – Stifel, Nicolaus & Co.

Yeah and just quickly that is net that would now corporate any higher cost serve in these areas on the short run correct?

Chris Bellairs

Yes it would.

Christopher Growe – Stifel, Nicolaus & Co.

It would include. Thank you.

Gregg Tanner

Let me slip on in, in past calls we talked about in the second quarter last year just as plant closure were starting to get traction we got really no benefit from plant closures and then small benefit in the third quarter and by the fourth quarter we were up to about what our run rate would be based on the plants that we closed in 2013.

That will continue in the first quarter and then as Greg said we’ve announced one more closure we expect in the second, third and fourth quarters of 2014 and if we announce further closures you will see the amount that we got in the fourth quarter of last year and that sort of run rate that we’re maintaining in the first quarter again to accelerate into further in the back half of 2014.

Christopher Growe – Stifel, Nicolaus & Co.

Okay that’s helpful, thank you. My other question is in relation to a comment you made about seeing higher milk cost in the first quarter. I just want to be clear on that I know that it is on precedent levels so I just wanted to understand as you sort of talking to retailers or customers in general is there, are you not able to pass it along given the level that we’re at today or is it related to the volume decline the strength things that go along with the high prices that really causing the first quarter to be so weak?

Chris Bellairs

Well I think it’s all of the above, Chris. I mean the big ones that you really can’t control are the shrink and the other cost associated with just higher milk prices and which are typically not a part of an equation on fixing updates. So you also have some of our bids around fixed bids. So those of you just when you see these kind of loan prices that which we did not obviously forecast that that hurts us.

So then you add to that the fact that you start to go over certainly pricing thresholds and I think we have been trying to hold some of our branded products down to try not to go over certain pricing thresholds just because of the fear of demand destruction and I think we’re reaching a point now like a $23 or $24 or 100 where I think some of those may start to break.

So we could gesture the price but in some cases we could – issues not to just because the demand – be even worse than not passing through the commodity increase.

Christopher Growe – Stifel, Nicolaus & Co.

Sure, that make sense. Are you going to give a chance – I’m sorry, go ahead.

Chris Bellairs

No, I was just going to say that’s an ongoing debate that we’re having right now since how much of it be really want to pass through and how much are you going to hurt in demand.

Christopher Growe – Stifel, Nicolaus & Co.

Hopefully you may get a chance to buyback your stocks. I guess just want to understand Chris your appetite for that in this environment given stock that has been weak here this morning.

Chris Bellairs

Yeah as we started earlier in the call – we first announced we increased the authorization last year we said we’ll be opportunistic with those – and so we expect we’ll continue to apply those sort of opportunistic in terms of those.

Christopher Growe – Stifel, Nicolaus & Co.

Sure. Thank you.

Gregg Tanner

We can do obviously to create shareholder value since what we’re going to look at and so we will continue to be opportunistic.

Christopher Growe – Stifel, Nicolaus & Co.

Thank you.

Chris Bellairs

Thank you, Chris.

Operator

As a reminder ladies and gentlemen please limit yourself to one question. And your next question comes from the line of Alexia Howard, with Sanford. Please proceed.

Alexia Howard – Sanford C. Bernstein

Good morning everyone. Can I ask you about the guidance of free cash flow for 2014 whether the big was there a big improvement expected in your plant, what confident do you have even see that kind of improvement during the course of the year especially – adjusted free cash flow into negative in related quarter? Thank you.

Chris Bellairs

Yeah it’s a great question Alexia. So let me kind of go through the usual suspects that we might expect to see free cash flow growth. So kind of starting at the top, net income actually about flat year-over-year so we get the benefit from reduced interest expense but we have lower operating income based on result for the business. So those two sort of net to about flat.

On our CapEx we expect to be flat year-over-year at about $175 million and working capital looks to be about flat year-over-year. So as you drain the usual suspects you don’t actually find the driver of a $60 million to $70 million year-over-year improvement in free cash flow. So what is actually driving that improvement is also what kind of gives me confidence that we can delivery it.

We’ve alluded several times today and on previous discussions to the fact that we’re going to pay below target short-term incentive compensation in 2013 based on our performance. And in fact if you go back one year prior to that in 2012 we had a very good year and paid well above the target bonuses. And the collusion of those two forces create a drag on bonus, a drag on free cash flow in 2013 and a tailwind for free cash flow in 2014.

So long way of saying that the vast majority of the improvement year-over-year is driven by the fact that free cash flow will be benefited by that low bonus payout but the cash effect of that low bonus payout in 2014 for 2013 performance. And as a result of that it does give me a reasonably good sense of confidence that we will be able to hit that because as you can see the usual suspects aren’t based on sort of heroic assumptions.

Alexia Howard – Sanford C. Bernstein

Great. Thank you very much. I’ll pass it on.

Gregg Tanner

Welcome.

Chris Bellairs

Thank you.

Operator

And your next question comes from the line of Eric Katzman with Deutsche Bank. Please proceed.

Eric Katzman – Deutsche Bank

Hi, thank you. So just a follow-up on Alexia’s question quickly. So you are basically saying that there is the accrual versus the cash effect is the difference?

Chris Bellairs

Precisely.

Eric Katzman – Deutsche Bank

Okay. And then I guess stepping back for a second, Gregg. The capacity realization for the industry where has that gone to from let’s say the end of 2012 to the how last year ended and kind of where do you expect that to go because ultimately kind of isn’t that what really needs to change here for the model to start working?

Gregg Tanner

Yeah, I think, Eric, it’s part of it would just be speculation because I can’t speculate on whether or not all the capacity has come out or is coming out. What I can speak to is what capacity we’ve brought out and taken out and what we’ve done with our utilization. So if you look at it from the perspective of we were down somewhere in the 7% for the year and we’ve taken out somewhere between 8% and 10% of our capacity.

So we were getting to the 3% improvement in our utilization. I think the other one is going forward it’s just a normalized fleet in our assets in general. So I think we feel like we are making good progress. I don’t want to speak to and don’t want to speculate on whether our competitors are or not?

Eric Katzman – Deutsche Bank

Okay. Just let me follow-up and then I’ll pass it on. Do you – it’s tough for us to see because the rest of the industry is private although I guess – is potentially for sale or moving capacity questionable as to whether what happens to that capacity. Is it your sense that the utilization rates for the industry outside of what you are doing should improve given what you see in the competitive landscape in 2014?

Gregg Tanner

No, we are always hoping for that. But I think what I’d tell you is that we will always be available to any of our customers as others decide to do something different, we will be there at service to all the customers.

Eric Katzman – Deutsche Bank

Okay, that’s excellent. Good luck.

Gregg Tanner

Thank you.

Operator

And your next question comes from the line of Farha Aslam from Stephens Incorporated. Please proceed.

Farha Aslam – Stephens Inc.

Hi, good morning.

Gregg Tanner

Good morning, Farha.

Farha Aslam – Stephens Inc.

I have a question about your pricing contracts. With all the – that you are seeing are you willing to change your pricing contract. Generally what – expect and do you anticipate what the lag is in terms of you being able to capture a commodity increase?

Chris Bellairs

Yeah. So sorry kind of towards the end of your question or maybe in the middle of your question on the percent of our business that – . I think it’s a fairly small percentage really the only major channel where we get into a number of discussions on fixing prices for a full year is within our school segment. So it is fixed prices for our school year which crosses over fiscal years. And even within school it’s a relatively small part of that business where individual school districts makes a decision that it’s to their benefit to sort of de-risk and have a fixed price – and in cases where that’s required to participate in the bid we are certainly willing to do that.

To the start of the question on whether we want to change how we contract with customers I don’t think so Farha, Gregg will have a point of view on that as well. But I think the way the industry has priced forever it’s fairly robust and the small inefficiencies that we might encounter as a result of the way we price or things that we just have to – work through and it’s one of the reasons why our cost productivity program is so important because if we manage down to GP and operating income it’s cost productivity there that allows us the cushion to be able to continue to absorb that inefficiency that comes our way.

Gregg Tanner

Yeah I’d agree with what Chris had said. I think the only thing that I’d add to that is that there are in some cases what we have, what I’d characterize as lag and drag pricing that I’d like to see overtime us to move away from but it’s a small percentage of our total, so it’s not anything that would significantly change.

Farha Aslam – Stephens Inc.

Okay. So net initiative being that you are not really altering your price and structure for 2014 versus 2013?

Gregg Tanner

No, I think the only thing that you could assume – that is it’s again we are in uncharted waters. So we’ve no plans to change our pricing policy but I think in some cases we are going to have make conscious decisions to try to avoid demand destruction of letting prices get so far out of lag that people just stop buying milk.

Farha Aslam – Stephens Inc.

That’s fine. Thanks for the color.

Gregg Tanner

Thank you.

Operator

And your next question comes from the line of Amit Sharma with BMO Capital Markets. Please proceed.

Amit Sharma – BMO Capital Markets

Hi, good morning everyone.

Gregg Tanner

Good morning, Amit.

Amit Sharma – BMO Capital Markets

Gregg thanks for giving some color on the pass through inefficiency impact. Can you talk what was the level of pass through inefficiency implied in the guidance?

Gregg Tanner

That’s a tough one to call. I mean we don’t assume other than our shrink rates, we typically don’t make given certain assumptions as to inefficiencies. Certainly but I’d say it’s a big part of as you look at year-over-year COGS inflation, year-over-year milk inflation and take it sort of by quarter throughout the year.

I’d say it’s a big part of the reconciliation to first quarter EPS being depressed we’re looking at probably somewhere between the $150 million to $200 million of inflation year-over-year just in the first quarter. And over shorter and shorter periods of time that can be challenge. Over a longer period of time we think that the pricing kind of works its way out but there is a short-term dynamic you have to account for as well.

Amit Sharma – BMO Capital Markets

And to bring it off as the first half was somewhat expected to – challenge and it is inline but it’s a second half recovery or therefore lack of it I think it was the guidance that’s really surprising to me. And given that you talked about that the net savings from the plant closures are going to come through in full force in the back half. Are we talking about gaining volume as-well-as the branded share seems to be holding up pretty okay as well.

So I am just little bit surprised by the lack of recovery in the back half and I was just wondering if the either the non-dairy costs that are going to come through stronger in the back half or you are building a little bit more in terms of you didn’t know that you could pass through all of the price?

Gregg Tanner

No, I guess I am a bit surprised because I believe our second half is pretty impressive and I liked the growth factors that we have in the second half of the year I am more concerned with the first half and what are numbers came out. So I don’t – I am not sure I have the same concerns about the second half of the year as what you are sharing. What I’d tell you is, is that we expect the second half of the year to have some declining nut prices in class one. And then you put that on top of all of the cost reductions that we put in place in the momentum that we have on that front.

And I think it lent itself to a very solid second half of the year. As our volume is the thing that I feel best about as I said earlier I think we’re going to be in great shape from a volume perspective.

Amit Sharma – BMO Capital Markets

Just a quick one if I may. Chris what’s the timing of the intent to come is it equally distributed to other quarters or is it going to hit through in the quarter?

Chris Bellairs

It’s reasonably leveled throughout the year I mean. And let me just – on back half of EPS and volume growth obviously we only guide forward one quarter for the quarter we’re in but clearly if we’re going to get 75 to 70 through the full year and start off the year at breakeven just sort of sequence that remaining EPS through the second, third and fourth quarters and take a look at how it overlaps versus 2013 and like as Greg said the growth rates that we’re talking about the back half of the year as we achieve those pretty impressive.

I mean I cleared in the sense that they will be higher it’s just a level of recovery it’s certainly not up to the level that is implied by volume gains and cost savings at least versus my expectations.

Amit Sharma – BMO Capital Markets

Right. Thank you.

Gregg Tanner

Thank you.

Operator

And you next question comes from the line of Matthew Grainger with Morgan Stanley. Please proceed.

Matthew Grainger – Morgan Stanley

Hi, good morning everyone thanks for the question. So Greg I just wanted to clarify the targets that you talked about for planned closures through 2014 just the release indicated 12 plans by mid-year and I think the commentary on the call is sort of positioning is a full year target in both cases I think I was expecting especially with CapEx saying up 175 that we might see another slate of planned closures that could be more incremental to the eight to nine that we’ve already been talking about during the past 12 months.

So what’s the right way to think about the target and I don’t want to minimize the difficulty of doing what you’ve already done but is it just not feasible to move any more quickly than the eight to 12 that you’ve discussed?

Gregg Tanner

Well I think what it runs into matters you start to get into the level of complexity. So the early on ones are a little bit easier to execute against than some of the later ones. And I think that’s part of what you are seeing here. It’s the sizing complexity of some of the changes because you are now – you are no longer taking facilities that you can just take that volume and put it into another facility but you have to build a capability and that takes a little longer it’s a little harder to execute.

So what I would tell you, you should expect to see as continue to more announcements going forward. But we’re still we expect to be on the high end of the eight to 12 plans.

Matthew Grainger – Morgan Stanley

Okay. Thanks Greg. And just one quick follow up I know you showed margin over milk sort of as it’s trended through December is there – we’ve seen class one go up to peak levels in February and I guess a bit further in March can you give us any sense of how that relationship is trended into quarter during the first quarter just you’ve concerns that in all time high milk prices could cause it to flex downwards a little bit?

Gregg Tanner

No we haven’t really seen much I think we saw January may be down a penny but I mean everything has been pretty flat across the –

Matthew Grainger – Morgan Stanley

Okay. Great thanks guys.

Operator

And your next question comes from the line of Ryan Oksenhendler, Bank of America. Please proceed.

Ryan Oksenhendler – Bank of America Merrill Lynch

Hey good morning guys. I’ve a question I am sorry if I missed this out I was really on core area but could you give an outlook or what your expectation is for volume demand for the industry for the year?

Gregg Tanner

No, our expectation was about to present for the year, for the category and we’re going to be flat to up.

Ryan Oksenhendler – Bank of America Merrill Lynch

Got it okay thanks for that. And then in terms of just thinking about the first quarter you had mentioned like the 1% price pass through and efficiency lead to 2% decline in profit. But I think your guidance was like 70% decline in profit for the first quarter and if you are going to have I think in the fourth quarter you said something like 20% impact from the overall business.

It implies that you are not pricing over that fixed cost business or just want to raise prices on branded on 25% of your volumes is that right or I guess what else is going on there that would drive such a massive decline?

Gregg Tanner

It’s not that we’re not going to take risks. There may be some inefficiencies because of the higher prices but that’s the reason there. If you look at fourth quarter to first quarter and you try to bridge that – Chris give you more of the details but if I look at the fourth quarter to first quarter you are going to see very similar performance the big difference between the two is that the one time so you heard us talk about the STI short term incentive.

And then we also had some health of – credit that came in, in the fourth quarter but we don’t necessarily see line of site to continue in the first quarter. So when you start looking across those two you can start to get to work somewhere and I’ll turn it over to Chris.

Chris Bellairs

Yeah I think Gregg exactly Ryan I think kind of the one of the reconciliations we thought helpful is exactly what he is describing going forward $0.18 in the fourth quarter to breakeven in the first quarter and I’ll give you sort of – lot of moving parts and a lot of – that give you six big buckets to consider.

First having at the macro level that we’ve already talked about milk prices will be up somewhere in the 10% to 15% range sequentially. So a fair amount of increase there from Q4 to Q1. The other big one there we’re looking at and clearly taking what we think at this point is a reasonably conservative point of view on is the category.

We saw the category down 2.2%in the fourth quarter and I would tell you after – like leap years and other things going on in prior quarters we think that 2.2% in the fourth quarter is about as bad as we’ve seen may be over the last several years. So as we look forward to the category particularly in the first quarter with very, very – prices we’re taking a conservative point of view on what that will be.

So those are the two big macro pieces the milk price on the category. On the volume front Gregg already alluded to the fact that Easter will move from the first quarter to the second quarter and that’s a substantial week for us I mean that’s not a small change so you need to take that into account when you look at the first quarter as well. And then sequentially from fourth quarter to the first quarter we also elute selling there. So we pay pretty close attention to how our volume differs by a selling day and losing a day from the fourth quarter to the first quarter we do 9 million to 10 million gallons a day that can also have a pretty significant drag.

And then finally the last two Gregg talked about both of them the short-term incentive comp where we set as we go back to accruing to full target pay offs in the first quarter of that to drag and the exceptional results that we had last year in safety allowed us in consort with our actuaries to sort of true up some of the balance sheet reserves and that was a tailwind through our all of 2013 but in fourth quarter as well.

And right now we don’t have visibility yet to moving through that next lower level of reserve balance that would allow us to repeat that in 2014.

Gregg Tanner

Does that help some?

Ryan Oksenhendler – Bank of America Merrill Lynch

Yeah, that helps.

Operator

And our final question comes from the line of John Baumgartner with Wells Fargo. Please proceed.

John Baumgartner – Wells Fargo Securities, LLC

Great good morning thanks for the call. Greg looking to the ice cream business here clearly butter suppliers are tightening going into the spring. So just curious as to how you re managing that business into the peak season? Are you looking to lock in raw materials build them up earlier than usual? I mean do you see hidden risk around ice creams contribution to meet your EBIT this year how are you thinking about that in terms of the 2014 plan?

Gregg Tanner

We’re not – ice cream for us from a hedging perspective is it helps us as we have our butter manufacturing. So we have got a little bit of a natural hedge built in. But we don’t see, we see currently butter prices have come down just a bit but we also see our pricing now through the season to be in good shape. So I don’t really see a major issue there.

John Baumgartner – Wells Fargo Securities, LLC

Okay. And then just a follow you in terms of the seasonal milk flavors you are launching I guess the marshmallow, you had peppermint background holidays do you have sense as to incremental list to your volumes from these flavors? Are they very much difference versus the base weight in chocolate milk business?

Gregg Tanner

You know they seem to you know what I haven’t seen the final numbers on peppermint over the holidays. I can’t tell you totally. On the chocolate marshmallow where we have got it in and we have sampled it it’s doing extremely well. I mean in our TruMoo products in general are doing really well where we have got them into the marketplace.

John Baumgartner – Wells Fargo Securities, LLC

Okay. Thanks for the question guys.

Gregg Tanner

Thank you.

Operator

I would now like to turn the call over to Mr. Gregg Tanner for closing remarks.

Gregg Tanner

Great, thank you again for joining us on the call this morning. We appreciate your continued interest in Dean Foods. Have a great day.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect and have a great day.

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