What happened 

Shares of food distribution giant US Foods Holding Corp. (NYSE:USFD) plunged as much as 16.2% in trading early Monday after the company announced second-quarter earnings and an acquisition. At 11:15 a.m. EDT, shares were at their daily low and still sliding. 

So what

Quarterly revenue was flat at $6.2 billion, and net income jumped 112% to $161 million, or $0.57 per share on an adjusted basis. The problem is that analysts were expecting $6.3 billion in revenue and earnings of $0.58 per share, so this was a slight earnings miss. 

Tomatoes in a bin.

Image source: Getty Images.

More concerning is that case volume fell 0.9% as large customers ordered less product. Price increases and expanding margins can only make up for falling volumes for so long, and the declining volume trend isn't a good sign for the health of the business. 

To add a little growth, US Foods announced the acquisition of SGA's Food Group of Cos for $1.8 billion in cash. This will give the company a larger presence in northwestern states, adding 12 distribution centers and $3.2 billion of net sales as of 2017, although detailed profit EBITDA projections weren't provided. Funding of the acquisition will come from $1.5 billion in new debt. 

Now what

An earnings miss isn't always a reason for alarm, but in the case of US Foods, it's another reminder that the company doesn't have many growth options other than buying competitors. As much as the $3.2 billion of revenue may seem like a great addition, management said the acquired distribution facilities won't add to earnings until the second year after the deal is completed. 

The market doesn't seem to think earnings or this acquisition will be great for long-term value, and it's hard to argue against that stance. I don't see any reason to buy US Foods until it turns volume around and starts showing some signs of long-term growth.