Performance Food down 18 percent on accounting errors disclosure

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Posted 3:38PM on Tuesday, March 12, 2002

NEW YORK - Shares of Performance Food Group tumbled more than 27 percent Tuesday after the company blindsided Wall Street with news that accounting errors had surfaced on its books, forcing a restatement of past profits. Investors, unforgiving in the wake of the Enron accounting scandal, sold off in droves a stock they'd pushed up to a 52-week high less than a month ago. Performance Food shares traded Tuesday afternoon at $28.88, down $6.27, or 18 percent on the Nasdaq Stock Market. Earlier, the stock hit an intraday low of $25.65. On Feb. 14, it hit a 12-month high of $39.21. As a result of the restatement, Performance was forced to cut its earnings projection for first quarter to between 23 cents and 25 cents a share -- a 7-to-8 cent reduction from previous guidance, analysts said. Performance also lowered its 2002 view to between $1.41 and $1.45 a share, disappointing analysts who were expecting the company to earn $1.50 a share in 2002. As for previous years, the company predicted that the errors would affect its net income by $4 million to $5 million. Performance Food, a Richmond, Va., distributor of foods to hotels, restaurants and institutions, said earlier that it had overstated gross profits at one of its units over the past two years, resulting in a downward adjustment to its first quarter and 2002 outlook and revised earnings for the past two years. The company blamed the errors on the accounting staff at one of its broadline units that it said failed to properly reconcile its accounting records to supporting detail. That, Performance Food said, led to an understatement of cost of goods sold for the subsidiary. The accounting staff also failed to appropriately account for intercompany transactions with a division of the unit, the company said. The company's disclosure earned it a number of downgrades. But some company followers on the sell-side argued that investors are overreacting. "Ordinarily this would not be a big deal, but in markets which are sensitive to accounting problems, investors tend to shoot first and ask questions later," Merrill Lynch analyst Mark Husson said in a research note. Husson stood by his opinion on the near-term and long-term prospects for Performance Food's stock, recommending it as a "strong buy." Husson said Performance Food's fundamentals "remain strong." Performance completed a $302.6 million cash acquisition of fresh-cut produce processor Fresh Express last year. Company officials couldn't be immediately be reached for additional comment.