Consumer spending in the U.S. has slowed, despite an increase in incomes and a decline in gas prices. It seems that consumers are deferring their spending in order to save for the future. Also, a stronger dollar has resulted in lower numbers of the companies who operate in the international market. Thus, retailers are struggling hard to attract more customers and keep the bottom line intact.
However, there are some companies which remain unaffected by such situations. Its results continue to rise as demand for its products are on the rise. Diamond Foods (DMND, Financial) is a packaged food company that specializes in snack products. Its shares have surged 14% since the beginning of this year. Also, it has beaten the analysts’ estimates in the last three out of four reported quarters, and the recently reported second quarter was not an exception. The numbers were ahead of the Street’s estimates, sending its shares higher.
A snapshot of the quarter
Revenue for the quarter surged 4.1% to $229.7 million, as compared to the previous year. This was slightly lower than the analysts’ estimate of $238 million. The top line was driven by higher sales in the snacks and the nuts segment in the U.S. However, it was partially offset by weak sales in the U.K. market due to higher promotions.
Revenue from the snacks segment was up by 3.2% over last year, clocking in at $120.4 million. Sales were mainly driven by the marketing efforts made by the company. Also, the Nuts segment climbed 5.2%, to $109.2 million, during the period.
The gross margin expanded 120 basis points to 26.6% during the period. Expansion of gross margin in the nuts segment was partly offset by lower margins in the snacks segment. Margins in the nuts segment increased by 490 basis points to 17.8% and were mainly driven by lower walnut costs and higher product prices. Margins in the snacks segment contracted 170 basis points to 34.7%, owing to higher promotions made by the company.
The bottom line of the company was indeed the brightest spot during the quarter. The earnings jumped to $0.35 per share from $0.12 per share in the previous year. This was much higher than the analysts’ estimate of $0.23 per share.
Some strengths to consider
Diamond Foods specializes in the marketing and selling of snacks and nuts. Its products are sold to big box retailers such as Costco (COST, Financial) and Walmart (WMT, Financial). Thus, higher store traffic at such grocers would result in higher sales for Diamond Foods also. Both Costco and Walmart have undertaken initiatives to attract more customers and boost sales. Thus, Diamond Foods is expected to benefit from this effort.
Moreover, with the growing demand for packaged food products, sales of Diamond Foods are expected to increase. Therefore, the packaged food retailer increased its outlook for the year. It expects adjusted earnings to be in the range of $0.95 per share to $1.1 per share from an earlier estimate of $0.90 per share to $1.1 per share.
Summary
Thus, Diamond Foods is expected to have a brighter future. Its share price has been growing and its marketing efforts should start bearing fruits. Furthermore, its bright outlook made investors happy. This company deserves a place in your portfolio.
