(AP) — Dean Foods Co.'s shares skyrocketed Wednesday after it posted a better-than-expected second-quarter profit, raised its full-year guidance and announced the initial public offering of one of its subsidiaries.
THE SPARK: The Dallas-based company announced late Tuesday that it has filed the regulatory paperwork for an IPO of its natural and organic foods business The WhiteWave Foods Co. Dean will own at least 80 percent of the shares of the company, which makes Horizon Organic milk, International Delight Creamers, Silk soymilk and Land O' Lakes creamer. It will eventually spin that off to shareholders and expects to use proceeds from the sale of the remaining 20 percent of shares to pay down debt.
It also reported that it moved to a profit for its second quarter and raised its full-year outlook, meeting analyst expectations.
THE BIG PICTURE: The IPO will separate WhiteWave from Dean's pure dairy business. It's also part of a broader trend among food companies to separate their businesses into like units to either allow for better focus in one niche or to set them up for possible sales.
Analysts had anticipated a transaction of this sort for years but thought the deal would still be further a year out given the company's debt levels, Stifel Nicolaus analyst Christopher Growe said in a research note. Still, the market warmly welcomed the surprise news.
THE ANALYSIS: WhiteWave has long been viewed as the crown jewel of Dean's business, Growe said. And with the company's balance sheet steadily improving, it is seen as a good move.
Growe said that WhiteWave is a very strong growth business that will be able to quickly reduce its debt. While this business might not go up for sale due to some tax consequences, it would be highly attractive to a number of large beverage companies such as Nestle, Coca-Cola and Pepsi.
SHARE ACTION: Shares soared nearly 41 percent to close at $17.46.
The gains make up for its loss in value over the past month or so. The company's stock plunged from a high of $16.98 at the beginning of July to its closing price of $12.42 just prior to its announcement.