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Why Chefs' Warehouse Stock Popped Then Dropped
Key Points
Chefs' Warehouse delivered terrific earnings this morning -- then sold off.
Shares are now bouncing around, up and down, as investors weigh the good news against the high stock price.
The Chefs' Warehouse (NASDAQ:CHEF) stock has been bouncing around quite a bit Wednesday. Shares of the specialty foods distributor tumbled 12% at the opening bell despite having just reported an earnings beat in the morning. Shares rebounded briefly, recovering their opening losses and jumping to near a 5% gain... before performing yet another U-turn and giving back most of the gains.
As of 12:20 p.m. ET, Chefs stock is up 1.5%.
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Chefs' Warehouse Q3 earnings
What's all the fuss about? Let's start with the good news: Analysts expected The Chefs' Warehouse to earn $0.58 per share in Q3, on $1.12 billion in sales, but the company actually earned $0.66 per share (adjusted for one-time items) on sales of $1.14 billion.
Sales climbed 11% year over year. Earnings as calculated under generally accepted accounting principles (GAAP) were actually a bit better than the adjusted number: $0.67 per share, up 52% from a year ago. Best of all, Chefs reported its free cash flow generated so far this year is now $115.7 million -- 44% ahead of reported net income and more than five times the cash generated one year ago!
What's next for Chefs Warehouse stock
This news gets even better. CEO Christopher Pappas says that momentum continued after the end of the quarter, giving Chefs a head start as it heads into the "busy holiday season." Management is accordingly raising full-year guidance and predicting sales will approach $4.6 billion through the end of this year. That's roughly what analysts were predicting, and implies forecasts for $2.55 per share in full-year earnings (up 34% year over year) are also within reach.
I don't know that this is quite enough profit to justify Chefs' 43 price-to-earnings ratio -- but it's certainly good news for shareholders.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.