This story was updated on 1/16/03.

Shares of American Italian Pasta (NYSE:PLB) dropped sharply on heavy volume yesterday, after management tweaked its profit outlook and initiated a quarterly dividend. The stock rebounded slightly in early trading today, but leaner times may lie ahead.

There was a lot to digest in yesterday's announcement. The takeaway, however, is that first-quarter revenues for American Italian, which sells branded and generic pasta to retailers and foodservice companies, fell 5% year over year.

An extra week in the year-ago quarter didn't help, but neither did the low-carb craze, labor problems in supermarkets across the country, and the fact that American Italian didn't receive a government subsidy it was counting on for the quarter. (Now it hopes to get that payment in Q2.)

All is hardly lost. The company is upbeat about huge deals with Kroger (NYSE:KR), Wal-Mart (NYSE:WMT), Sysco (NYSE:SYY), General Mills (NYSE:GM), and others. And the pasta maker is looking to jump on the latest diet-fad craze. With a product mix in the works to incorporate more low-carb products, American Italian expects a healthly kick to profits this year. (Everyone, perhaps, would like to lose some weight -- but at the expense of pasta? Perish the thought.)

Investors watching American Italian down the road would be smart to keep things in perspective. Heck, the company does: While it proudly points to compounded annual sales and operating profit growth of more than 20% since going public in 1997, the outlook for the coming fiscal year is a little less hearty. Management expects sales to rise between 11% and 18% year over year, while earnings-per-share growth is targeted at 10% to 17%.

As an alert reader pointed out, however, investors should look at the EPS forecast carefully. The number the company is using for last year's earnings includes a significant charge for acquisitions and plant start-up costs, which lowers the 2003 figure and therefore boosts the forward earnings growth number. If you exclude it, the projected growth range is much lower -- more like 2% to 8%."

The upshot is that American Italian is maturing. That means increased cash flow now that spending on acquisitions and capacity expansion is slowing. It also means a dividend. And, sure, it means slower profit growth, but that doesn't mean investors can't appreciate what the company has: prime positioning, strong partners, and the financial flexibility to maintain profits and move with the times.

Share your best low-carb Italian recipes on our Recipes/Cooking discussion board. Dave Marino-Nachison can be reached at