10-year

10-Year Anniversary Promotion (20% off)

Join GuruFocus Premium Membership Now for Only $279/Year

Once a decade discount

Save up to $500 on Global Membership.

Don't Miss It !

Free 7-day Trial
All Articles and Columns »

This Food Giant Should Be Avoided

July 30, 2014 | About:
Suravi Thacker

Suravi Thacker

1 followers

Things have been looking better as the economy has been recovering. There are good numbers coming in from the housing sector as well as retail. People have started opening up their wallets and have started spending on luxury. Moreover, companies in the retail space have been looking forward to the holiday season where they can make most of their money, and the food industry is no exception.

Food retailers have been gearing up for the spring season with a variety of product offerings and increased promotions in order to attract maximum customers. However, Diamond Foods (DMND) has a different story to tell us. Its snacks weren’t enough to register a decent quarter. Its mixed results led to a strong decrease in its stock price.

Key Mishaps

Although the top line surged 3% to $191 million, the bottom lines took a hit, falling drastically over the prior year. Diamond Foods’ inappropriate payments to farmers led to huge problems. Its restated financials took away a large share of the profits as well as the trust of farmers. Most of the farmers withdrew their nut supply from the retailer, which led to huge losses in the supply. Additionally, a plant closure also contributed to the loss. These factors together pulled down revenue of the nuts segment, which plunged 5% over last year.

Even retail sales decreased slightly as sales of products such as Emerald nuts decreased substantially. However, growing demand for its popcorn came in as a relief.

Declining demand as well as supply was mainly due to the dwindling reputation of the company. The biggest loss to the retailer was the opportunity to acquire Pringles from Procter & Gamble. The acquisition was very much sought after since it would have strengthened Diamond Foods’ potato chips’ segment with a great brand.

The Epic Downfall

The Pringles deal, when announced, had a positive impact on Diamond’s stock price. However, with disheartening performances over the last few quarters and the loss of the deal, the stock has subsequently tanked.

The stock price performance of the retailer as compared to its industry peers, ConAgra Foods (CAG) and J&J Snack Foods (JJSF), highlights the losing credentials of Diamond Foods as against others, over the last five years. Diamond Foods share price inched up by 3.9% only, whereas ConAgra and J&J Snack Foods registered growth of 61% and 161%, respectively.

ConAgra has been consistently performing well, owing to its continuous efforts to have additional offerings to its product portfolio. It has recently added organic foods to its kitty for its health conscious customers as the segment has been showing great growth potential. It has been very active on the acquisition front also. Its buyouts include National Pretzel Company, Del Monte Canada and Bertolli and P.F. Chang’s Home Menu in the last year. Each of them has helped significantly to strengthen ConAgra’s position leading to better results and amazing returns to investors.

Though J&J Snack Foods haven’t been an exemplary performer, its efforts have been interesting to notice. It provides nutritional snacks which are popular among health conscious customers. Moreover, demand for such food has been on the rise for quite some time which might benefit the retailer. Its recent acquisition of Kim & Scott’s Gourmet Pretzels made in June last year is another move to enhance its principal product offering of soft pretzels which has helped improve the company’s performance.

Conclusive Thoughts

Though there have been problems related to demand and supply for Diamond Foods, the only point of relief is its operational efficiencies and its cost cutting measures which have helped the company to survive and its margins to expand. However, if there is no supply or demand for its products, the efforts will be fruitless.

Clearly, Diamond Foods looks like an unsafe bet at this juncture. With not much moves on the cards and the rapidly declining confidence of customers, suppliers, and investors, the company might have a tough time in the days to come. Investors should definitely stay away from this retailer.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK