Dean Foods' plan to spin off milk unit whisks shares 36% higher
Dean Foods surged yesterday after the dairy company said it would spin off its soy milk and organic products business and sell up to 20 per cent of the new company through an initial public offering.
Dean will use proceeds from the IPO of its White-Wave unit to pay down debt. Its stock climbed 40.6 per cent to $17.46 as Dean also easily exceeded analyst estimates of quarterly earnings. The company's shares have jumped 55.9 per cent so far this year. However, analysts remained cautious as the outlook for organic growth appeared challenging.
Alexia Howard, analyst at Bernstein Research, said the rise in milk prices due to scarce supply in the short term and a price war triggered by struggling supermarket operators such as Supervalu remained concerns.
Ms Howard, who reduced the 12-month target price of the stock to $18 from $20, added: "This was several months earlier than we had expected and was presumably enabled by the strong free cash flow and leverage reduction seen this quarter."
The S&P consumer staples index, which includes Dean Food, was the forerunner yesterday. The subgroup added 0.6 per cent. Other stocks in the index were mixed. ConAgra Food dropped 0.1 per cent to $24.68, but Kraft Foods added 0.6 per cent to $41.10.
Wall Street opened lower, before regaining its poise in later trade. The S&P 500 finished 0.1 per cent higher at 1,402.22.
But Paul Hickey, cofounder of Bespoke Investment Group, said: "We found that, although economic sentiment had shown across-the-board improvement relative to a year ago, market sentiment was lower compared with a year ago."
He argued that, even though the S&P 500 has rallied in this earnings season, investors were yet to be convinced due to the constant assault of scandals, trading glitches and market breakdowns; they appeared to be content to sit on the sidelines.
Seven of the 10 S&P 500 sectors traded in positive territory while the consumer discretionary and industrials indices led losses. The subgroups fell 0.4 per cent and 0.1 per cent, respectively.
Macy's climbed 2.7 per cent to $38.01 after the department store reported strong year-on-year growth in quarterly profits, thanks to a rise in online sales.
The stock was downgraded previously on the fear of weak consumer sentiment.
Electronic retailer Best Buy, which had jumped earlier on takeover hopes, edged down 0.2 per cent to $19.86.
Ralph Lauren fell 1.1 per cent to $151.35. The US luxury retailer warned its current quarterly revenues would be negatively affected by the lacklustre global economy.
News Corp lost 1.4 per cent to $23.40 in its afterhours trading as the company reported a $2.9bn pretax impairment in the fourth quarter that was related to the plan to spin off its publishing business.
The benchmark Dow Jones Industrial Average ticked up 0.1 per cent to 13,175.64. The tech-heavy Nasdaq Composite closed in negative territory but remained above the 3,000 mark at 3,011.25. It finished 0.2 per cent lower.
Priceline.com fell 17.3 per cent to $562.32 as the discount travel booking website lowered its outlook for the rest of the year.
Scott Kessler, analyst at S&P Capital IQ, trimmed the 2013 forecast to $30 from $32 for the company as revenue growth is expected to continue decelerating.
George Askew, analyst at Stifel Nicolaus, said: "We believe Priceline's gross bookings growth ex -currency will settle into a 20-25 per cent range for a multiyear period.
"As a result, we believe that Priceline is transitioning from a momentum stock to a growth stock and the valuation multiple will adjust downward in tandem," he added.
That knocked rival Expedia, whose shares lost 4.6 per cent to $56.14, while TripAdvisor, the travel recommendation business spun out of Expedia, dropped 4.9 per cent to $36.77 for the second-worst opening in the S&P 500 after Priceline.com.
Computer Sciences Corp, the IT outsourcing company, shot up 15.7 per cent to $29.53 as the company reported lower quarterly profits than a year ago but nevertheless beat expectations.
Shares in Hewlett-Packard rose 2.4 per cent to $19.41 with the PC maker taking an $8bn writedown on its services division.
The stock had plunged 24.7 per cent so far this year.