Del Monte Foods (DLM) sweetened investor appetites Thursday with better-than-expected earnings results and sharply improved guidance, sending shares up more than 9% in Thursday afternoon trading.

The San Francisco-based food company swung to a fiscal first-quarter profit of 29 cents a share, reversing a five-cents-a-share loss from a year ago, and blowing past Wall Street's consensus forecast of five cents a share. It also said its full-year earnings will be between 88 cents and 92 cents, with net sales growth of 4% to 6%. An earlier forecast in June estimated earnings at 76 to 80 cents a share. Net sales for the quarter improved 12.0%.

Chairman and CEO Rick Wolford said much of the growth came from the pet foods division, which includes the Kibbles 'n Bits and Meow Mix brands. The business had revenue growth of 20%, he said on a Thursday conference call. The fiscal second quarter should see broader improvement, Wolford said. "Importantly, heading into the second quarter, we anticipate improving relative market share performance in our consumer business, reflecting its underlying health, as we begin to lap the vast majority of our fiscal 2009 pricing actions, including two double-digit increases in vegetable and tomatoes and a high single-digit increase in fruit," he said.

Morningstar analyst Ann Gilpin said Del Monte's results were impressive, but hard to sustain. "Del Monte surprised us by raising prices and increasing volume, a combination most packaged food firms haven't been able to achieve," she wrote Thursday. "While this jump in sales is impressive, we don't expect this to be the run rate for the year, as the company will start to lap last year's price increases." Selling brand-name foods in a recession remains a challenge, and Gilpin wrote that most consumers are still shopping aggressively for low prices, especially in many of the categories in which Del Monte competes, like canned fruits and vegetables. When the company starts spending more on marketing, she said the company s profit margin growth will be limited.

Bottom Line: Sell
Del Monte shares haven't been this high since August 2007. For investors that see growth as less certain and concerns about a broader selloff growing, take some profits.

Earnings Miss Drags Down Hovnanian Shares

Investors expressed their doubts in home builder Hovnanian Enterprises (HOV). The money it spent on expansion plans during the housing boom continue to haunt the company during the housing bust. It narrowed its loss for the fiscal third quarter but remains under considerable pressure. The stock was down nearly 13% Thursday afternoon.

The Red Bank, N.J., home builder, which operates mostly on the east coast, but also in the hard-hit markets of Florida, Arizona and California, said Wednesday it incurred a loss of $2.16 a share, compared with a year-earlier loss of $2.67 a share. It was the company's 12th quarterly loss in a row. The company said it had $105.7 million in write-downs on land and other items, compared with $111.7 million a year earlier.

"The losses continued in our third quarter, but there are a few indications that the market may be seeking a bottom," President and CEO Ara Hovnanian said in a Thursday morning conference call. "For starters, it's good to see our cancellation rates settling into a more normalized pattern. Our cancellation rate was 23% for the third quarter; this is the second quarter in a row that cancellation rates were back to our typical low 20% range, which for us is a more normalized cancellation rate."

Although home sales data has climbed the best results are in sales of existing homes because there are so many of them vacant, says Jack McCabe, head of McCabe Research and Consulting, a Deerfield Beach, Fla.-based firm. "There just isn't any sense building homes right now unless you can compete with the foreclosures," he says. "And with foreclosures below replacement costs, Hovnanian and other builders can't compete. They've been hammered in some of the hardest hit markets."

A particular drag for Hovnanian is in South Florida's Fort Myers-Cape Coral region, one of the state's worst housing markets. Hovnanian in August 2005 almost the peak of the market took on debt and bought First Home Builders of Florida. Property values in the area have since plunged more than 25% from their last purchase prices, according to the Lee County appraiser's office. "At some point, it was clear that had it not been for their Florida operations they would have been profitable," McCabe says. "Some divisions are actually doing pretty decently, but debt is hurting them now."

Hovnanian is also contending with the sprawling chaos of tainted drywall imported from China that was used in some of its homes during the building boom. Along with other big and small builders, it's faced allegations that the drywall panels emit fumes that corrode wiring, discolor metal fixtures and may cause health problems.

Bottom Line: Sell
It's rarely a good idea to sell into weakness, but these shares were 60 cents apiece at the March low. The stock has risen on hope. The fundamentals aren't there, even without the impact of the sinkhole dynamics of the Sunshine State.