Consumer spending in the U.S. is on the rise as people are back to their splurge during the holiday season. Retailers are waiting eagerly to cash on the peak season of the year by formulating strategies to attract them. Among all the possible industries, specialty snack food industry looks pretty interesting.
Diamond Foods (DMND, Financial) is one of the leading players in this industry, but a weak packaged food environment is making it difficult for the company to register higher growth. Nonetheless, the retailer has managed to beat the earnings expectations in three out of the last four quarters. The company also reported its first-quarter numbers recently, which pleased the investors, sending its share prices higher. Let's take a look.
Mixed results
Although the top line surged 5.1% to $246.6 million, over last year, it was slightly below the estimate of $253 million. Higher sales were driven by market share gains in the U.S. as demand for its products increased. Some of the strongest performing segments were Kettle U.S. and Diamond of California, which contributed to the revenue increase.
The company also made gains in the Emerald 100-calorie pack. Demand for 100 calorie pack increased since people have become highly health conscious and prefer to keep their calorie intake in check. Also, customers have become more inclined to organic and natural foods which are healthier than other packaged food.
However, there were some hindrances too, which affected the performance of the company. There was a decline in revenue from the U.K. This decline was not because of lower demand for its products, but because of a loss of a private label contract as competition has increased in the region. Moreover, some execution issues in the ready to eat popcorn segment resulted in softer sales in this category.
Further, gross margin of the company contracted 60 basis points to 24.1% during the quarter. However, adjusted earnings registered an increase of 33.3% to $0.28 per share, as compared to the prior year. The bottom line was higher than the analysts' estimate of $0.24 per share. Despite falling short of the revenue expectations, the company managed to post higher than expected earnings of the company.
Going by the segments
The Snacks segment grew 3.6% to $116.6 million, over last year. The Nuts segment was one of the brightest spots as sales jumped 6.5% to $130 million. Demand for nuts was higher than that of snacks. Also, higher walnut supply helped the company expand this category. In addition, expanding this segment will help in increasing the margins of the company since nuts have higher margins.
The snack food retailer also carried out a PopSecret promotion campaign during the quarter, which was helpful in attracting customers. But, the advertising efforts were made late. Hence, the benefits of the promotion campaign are yet to be realized.
Conclusive thoughts
Diamond Foods' marketing strategies look interesting. Its new products and focus on the nut segment should help in growing the business. Furthermore, it reiterated its guidance for the year, making investors hopeful about the company. With an appreciation of 2% in its share price in the last one year, this food retailer looks like a promising bet for the future.
