MILWAUKEE (AP) — Shares of dairy processor Dean Foods Co. fell on Friday, even as the company's first-quarter profit more than doubled as investors reacted to its announced share offering, which could lower per-share earnings in the second quarter.
Shares of the Dallas-based company fell $1.32, or 6.4 percent, to $19.38 in morning trading Friday.
Stifel Nicolaus & Co. analyst Christopher Growe wrote in a note to clients that the company's first-quarter results were positive, fueled by low input prices for milk and fuel and improving volumes.
But he said the company's announcement that it will issue at least $465 million in shares to help pay down debt is "confusing."
The nation's largest milk processor said Friday it plans to issue 22.5 million shares, with another nearly 3.4 million available to underwriters. At the stock's closing price of $20.70 on Thursday, the offer of 22.5 million would be worth about $465.8 million.
Growe said the moves, which could finance some acquisitions, were not expected.
"The equity offering threw us off a bit as we expected stronger earnings to potentially flow through to the bottom line," he said. "And while that effectively happened with this strong first quarter, the company gave it all back by announcing this equity offering."
The company said it would use proceeds to repay $122.8 million of its 6.625 percent senior notes due May 15, with the remainder going to repay debt under Dean's receivables-backed facility.
Deutsche-Bank North America analyst Eric Katzman told clients the share offering will amount to a drop of 10 cents a share for annualized earnings.
The company said that given the impact of the offerings, it expects earnings per share of at least 38 cents in the second quarter, which would be below analyst estimates. According to Thomson Reuters, analysts predict the company earns 41 cents in the quarter ending in June.
But it maintained its full-year guidance of earnings per share of at least $1.55, which implies 20 percent earnings growth
Growe said the company should have a strong year given the drop in input prices.
"Lower input prices should drive stronger volumes and enhance profitability through the remainder of 2009," he wrote.